Executive Summary
In this final assessment for Corporate Award Program, it intends to create a formal negotiation plan for Petroleum Development Oman (PDO). The basis of this negotiation plan include facts, data and tools/techniques relevant for negotiation practice. By reflecting on Information Technology (IT) as the category of spend, different models, tools and concepts have been applied to evaluate and propose the best negotiation plans. The basis of selecting the IT is informed by the efforts being put in place by PDO as part of modernisation of their operations. Further, as a consequence of the past COVID-19 pandemic, the use of IT has increased in its popularity in flexible/remote working opportunities. Also, as PDO is focusing on expanding their operations due to the increased demand of oil and gas products, investing IT is essential. Therefore, due to these factors, the demand for IT products has substantially been on the rise. For negotiation process success, PDO procurement and supply management (PS&M) engages different professionals, follow elaborate terms and conditions, clear process and elaborate strategy. This is while ensuring they forecast, plan and align their negotiations with the services offered to oil and gas customers.
The findings in this integrative assessment evidence that PDO follow different stages in negotiation which are similar to the CIPD guidelines. These phases include preparation, opening, testing, proposal, bargaining, agreement and close. Also, by using techniques such as Porter’s 5 Forces, STEEPLE and SWOT technique, the best practice in supporting negotiation strategy has been established. Further, through the application of Mendelow Technique analysis and Suppliers Preferencing Matrix, best practice in negotiation has been established. This is with 3P’s, 5 rights Procurement and other strategies being adopted to collaborate how the external factors in their environment and internal practices are coordinated. From the adoption of the identified approaches manage likely bottlenecks attained by embracing BATNA technique.
As evidenced in the analysis findings in this assessment, various recommendations have been generated which are;
- Successfully restructuring the PDO process of negotiation to classify the PS&M process to manage issues associated with duplicated functions as part of procurement cycle
- Consider implementing appropriate outsourcing approach for promoting the level of value adoption of their products and save on costs
- Developing appropriate and effective specifications for ensuring inclusion of all stakeholders in the contract development process. The rationale of this is promoting the procurement process success
- PDO need to pursue a holistic suppliers selection approach informed by their SWOT analysis by prioritising on issues on viability, evaluating supply risks and leveraging on competitive advantage
Table of Contents
1.2 Background of Petroleum Development Oman (PDO) 5
1.3 Selected Category of Spend. 6
2.1 RACI Model of PDO Contracting and Procurement 9
3.0 Negotiation Plan in PDO IT Category. 14
3.1.3 Achieving BATNA as part of Negotiation. 17
3.1.4 Potential Negotiation Approaches. 18
Appendix 1: PDO Contract Terms and Conditions. 30
Figure 1:Summary of the Procurement Cycle and Requirements. 5
Figure 2:PDO Company Ownership. 6
Figure 3:Summary of PDO Contracting and Procurement Organisation Structure. 7
Figure 4:Summary of PDO Spend categories. 8
Figure 5:Contracting and Procurement Process. 10
Figure 6:RACI Model Summary. 11
Figure 7:Summary of PDO Stakeholders Groups 13
Figure 8:PDO Mendelow Matrix Stakeholders Analysis. 14
Figure 9:PDO Phases of Negotiation. 15
Figure 10:Negotiation Process Integrated. 16
Figure 11:BATNA Approach for PDO IT procurement 19
Figure 12:Negotiation Approaches used. 20
Figure 13:5 Rights of Procurement 21
Figure 14:3P’s Triple Bottomline. 23
Figure 15:Supplier Preferencing Matrix. 24
Table 1:IT sub-categories of spend. 8
Table 2: STEEPLED Analysis. 17
Table 3:4R’s Model Analysis 23
1.0 Introduction
Today, due to high competition which define modern business environment, success of commercial contracts is limited. The contracts success is hindered by flaws in stakeholders management, costing, delivering, misunderstood quality/quantity and potential variation/amendments of contract terms. According to CIPS (2022), a successful negotiation is defined with existence of holistic communication, appropriate stakeholders relations (government, PDO as a buyer, vendors, PS&M teams as negotiators and legal teams/IT experts). Hence, as part of negotiation, identifying all stakeholders, noting on their concerns and variables definition need to be achieved. This is supported by Kharouf et al. (2020) which identify negotiations as involving detailed communication by all engaged parties with the objective and outcome expected being to attain a mutual-based agreement. Considering figure 1 summary, negotiation process is comprised of multiple components. It is from these components that Key Performance Indicators (KPIs) and Service Level Agreements (SLA’s) of the negotiation process are established.
Figure 1:Summary of the Procurement Cycle and Requirements
1.1 Scope of Assessment
This integrative assessment intend to establish a background of a formal commercial negotiation plan for PDO organisation. The established commercial negotiation is informed by key statistics, fata and strategies established. Also, the spend category terms and conditions which define the relationship with different stakeholders has been evaluated (see appendix 1). This is in regard to quality, time for delivery, interaction and relationships. Further, by use of different techniques and tools ‘STEEPLE analysis, 5 Rights of Procurement, Mendelow Matrix, SWOT analysis and 3P’s triple bottom-line and others’ appropriate findings which align the negotiation plan with the organisation best practice has been established.
1.2 Background of Petroleum Development Oman (PDO)
Petroleum Development of Oman (PDO) leads in exploring and production of oil and gas products in Sultanate of Oman. The organisation is involved in the delivery of most of the country crude oil production and supplying nature gas. As evidenced in PDO (2022), the success of their operations is evidenced by delivery of excellence, growth and sustainable value creation and development beyond this industry. A summary of the company ownership is as illustrated in figure 2. The Government of Oman is the major owner of the company at 60%.
Figure 2:PDO Company Ownership
Source: PDO (2022)
As a result of success in their operations, today, PDO operates in a concession area of approximately 90,0000 kilometre squared (one third of the entire Oman geographical area). Further, the organisation manage 205 producing oil fields, a total of 64 gas fields, 29 production stations, upward of 8,400 active wells, more than 33,000 kilometres of pipelines and flowlines. This is with 231 operating units in their well engineering fleet and inclusive of 49 rigs and 39 hoists. Also, by appreciating inclusion and diversity, PDO work with more than 8,900 employees from more than 50 countries with an upward of 50,000 direct and indirect suppliers (PDO, 2018). To succeed in managing all these suppliers, the organisation operates a contracting and supply department. The company is popularly known for promoting the In-Country Value (ICV) policy (PDO, 2022). Through adoption of this policy, the priority is offered to the Oman nationals for maximising the sourcing of different categories of spend therefore increasing capacity and capability of Omanis. This is for optimum gain and benefit for the Government of Oman which owns 60% of the organisation.
For the PDO contracting and supply department, it is hierarchically structured. As illustrated in figure 3, at the top of the hierarchy is the procurement and supply manager. Below the manager are the onshore and offshore managers and teams mandated with a responsibility of operating as affiliates, tendering portal, services, procuring direct and indirect products in all levels. By strictly following the identified hierarchy, PDO employees operates successfully in a competent and collaborative way to ensure they are successful based on the terms and conditions of procurement as summarised in the appendices. The contracting and procurement team in PDO ensures that they engage all stakeholders, modernise their operations by use of Oracle and iSourcing and competitive sourcing. Specifically, post COVID-19, the organisation has significantly been leveraging on technology for guaranteeing their success in technology-based procurement process.
Figure 3:Summary of PDO Contracting and Procurement Organisation Structure
1.3 Selected Category of Spend
For PDO, to successfully operate both onshore and offshore, they engages different suppliers in sourcing different categories of goods and services. In line with CIPS Guidelines, the sourced goods and services by PS&M are broadly grouped into direct, indirect and services (see figure 4 summary).
Figure 4:Summary of PDO Spend categories
Considering the figure 4 summary of PDO categories of spend, they broadly influence how it drive value of their PS&M process. According to (REF), for the different categories, they play a significant role for the end-product or output of the organisation. As evidenced in Zawya (2022) the output of PDO include delivery of oil, gas and condensate production which average at ‘1.223 million barrels’ of oil daily as of 2021. This is with their oil production being an average of 635,000 bpd (5,000 bpd short of target) with every year gas production averaging 57 million cubic meters per day’. Hence, for the Information Technology (IT) which is the selected spend category, a summary of its subcategories is provided in table 1. This support the need for coming up with a negotiation approach for the organisation.
Table 1:IT sub-categories of spend
| PDO Spend Category | Sources | Sub-categories |
| Employees flexible working IT systems | Oman and internationally | Telecommuting, remote work, job sharing and hybrid work technology |
| Oil and gas products diagnosis | Middle East and locally | Hydraulic fracturing, seismic imaging, measurement while drilling systems, ROVs and horizontal drilling |
| Analysis of fluids “S-O-S” | Internationally and Oman | Engine, hydraulic and drive train oils |
| Monitoring onshore and offshore operations | Local, regional and internationally | Sensors, solutions to maintain offshore machinery, environment conservation technologies |
| Inspecting of machine data | Internationally | Ultrasonic testing, Eddy current testing, visual inspection and radiography |
2.0 Current Situation
Today, for success in PDO contracting and procurement process, they adopt a series of phases which ensure they achieve expected quality and quantity guided by their specifications. Through the procurement cycle (see figure 1), all the stages identified are strictly followed to guarantee the process success. According to CIPS (2022a), for success in procurement, there must be qualified experts engaged to achieve the objectives. For support of this team, by partnering with CIPS, since 2015, many of their teams has gone through the program both practitioner and advanced levels. This has been instrumental in maintaining and building competent workforce for meeting the ever-changing demands and cost controls (PDO, 2022a). From this development, as illustrated in figure 4, the staff are in a position of identifying all specifications, highlight of all needs and opportunities and operate in a cross-functional environment.
Figure 5:Contracting and Procurement Process
For PDO, their practice in contracting and procurement is primarily guided by procurement cycle. As a result, they are capable of explicitly defining their business demands, analysing markets, planning and strategizing, documents, tendering, improved performance and logistical. Since they engages multiple stakeholders, Liu et al. (2021) hypothesise on the need of identifying them, involving them in negotiation to harness the PS&M efficiency.
2.1 RACI Model of PDO Contracting and Procurement
For success of PDO contracting and procurement process, they ensure they are accountable and competent in the different procurement cycle phases. For RACI (see figure 6), all responsible stakeholders are identified, selected and assigned with different responsibilities. According to NC State University (2017), by using the RACI model, it is possible to highlight on the different interests of stakeholders, prioritising it and successfully executing their contracting and procurement process.
Figure 6:RACI Model Summary
In the IT category in PDO, stakeholders types are engaged which define relationships of stakeholders in negotiation. A summary of figure 6 include;
Responsible- In this category, it include the people who have the mandate to pursue different responsibilities. In IT sourcing, Contract and Procurement teams are engaged actively. Starting with the hierarchy top of the management, entire stakeholders are responsible of various roles. For instance, in the flexible working of employees post COVID-19 pandemic, it call for different stakeholders including the administration and people practice professionals to operationalise their operations. As illustrated in figure 6, all these people are responsible for collaborative work and teamwork.
Accountability- Accountability scopes beyond the decisions made to ensure they are all-inclusive. Considering the IT sourcing category in PDO, all stakeholders are supposed to be accountable of implementation of their operations. The senior manager in the procurement and supply ensure all decisions are collaborated. According to Silva-Aravena et al. (2020), inventory planners are engaged for ensuring entire procurement phases are pursued in line with set laws. In IT spend category, all their operations call for approval from the management and all departments of quality assurers. In the process of procurement cycle, any error or mistake resulting to adverse effects is owned up by the accountable individuals. For instance, lack of timely supply of computers and systems updates is accountability of the IT manager in PDO.
Consulting- Prior PDO engages in production and processing of oil and gas products, they engage consultants. According to Chang et al. (2019), being active players, they are engaged to guarantee efficiency of contracting and supply process. For instance, the interests of oil and gas products/raw materials in Oman must be consulted and hence closely managed to ensure there is an appropriate relationship established in the sourcing process. Considering PDO majorly adopts the use of iSourcing in IT procurement, this can include obtaining on-time feedback on areas to be improved.
Informing– According to Omar et al. (2021), this include the different individuals who must be notified in the contracting and procurement process. In the Mendelow analysis of stakeholders (see later section), this group is in monitoring quadrant. They are the Oman oil and gas regulators, accessors of both onshore and offshore and internal and external auditors/quality assurers. By ensuring this category is informed, it guarantee PDO that its operations are in line with the set legislations and policies in the oil and gas sector in Oman. As evidenced by this RACI model summary, negotiations ought to be prioritising on the quality and quantity aspects which are influenced by necessary Oman government laws. Specifically, post COVID-19 pandemic, regulators are important to guarantee safety and wellness of all engaged stakeholders. This lead to an improved services provision and dominance of PDO in local and international oil and gas sector.
2.2 Stakeholders Analysis
From the RACI model analysis, pursuing stakeholders analysis is essential. CIPS (2022b) define a stakeholder as a person or a body impacting the execution of a project or provision of products and services in their intended form. Further, any strategic, operational and tactical practice by an entity is successfully attained through supporting various stakeholders, harnessing their support and commitment. A summary of PDO Stakeholders is illustrated in figure 7;
Figure 7:Summary of PDO Stakeholders Groups
As summarised in figure 7, the different stakeholders types are involved to influence supply chain success and overall procurement cycle which include the clients, logistic teams and operations in line with Oman authorities. The stakeholders impact the entire negotiation process success. This is while ensuring they manage complexities emerging from globalisation, innovation and changing scope of intercultural communication.
In particular, considering IT category in PDO, different stakeholders influence and interest is as shown in figure 8. Depending on their influence or interest, they ought to be monitored, kept satisfied, managed closely or kept informed. In the entire contracting and procurement process, PDO prioritise on their interest as all stakeholders operate under the organisation.
Figure 8:PDO Mendelow Matrix Stakeholders Analysis
Low Interest; High Power-Sultanate of Oman administration and also the regulators need minimal efforts due to their low interest but high power. They are in a position of leveraging on available resources and establish a good environment for PDO operations. Hence, they are not majorly engaged in negotiations or successful strategic sourcing strategy.
High Power; Low Interest- For the top managers and also the CEO’s, they belong to this category. They have immense power in the entire operations of IT sourcing. Today, post COVID-19 pandemic and the current economic recession, the budgetary allocation in IT has increased hence the need of close monitoring and also approvals.
High Power; High Interest- For contract and procurement teams, manufacturers of the IT systems, end-users or customers, auditing and law enforcers, they belong to this category. Their mandate is improving relations in sourcing process hence key players.
Low Power; High Interest– In IT sourcing, this category include suppliers/vendors. From the negotiation, they are interested to increase their profits through the relationship built with PDO. Further, Oman community benefit from PDO sustainability initiatives (CSR) with competitors being instrumental for benchmarking on best practice. This necessitate their keep informed quadrant in the matrix.
3.0 Negotiation Plan in PDO IT Category
For all the assigned roles of contract and procurement, negotiation is the most instrumental. According to Chen and Xu (2018), negotiation is the process followed to come up to a mutually beneficial or acceptable decision involving different parties. For PDO…………..
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