Tony D'Agostino, Summer 2002
In the spring
newsletter I wrote an opinion piece on my view of the evolving state of
employee training and continuing education in our industry. Downsizing
and outsourcing have shifted much of that responsibility out of the upstream
companies and into the professional societies and service companies. In
this newsletter I'm going to climb a bit further out on that limb and
relate my views on the evolving nature of the organic relationship between
upstream companies, Research and Development groups, and technology service
providers. This strikes me as a pertinent newsletter subject for two reasons.
Approximately 37% of the GCSSEPM membership is employed by an upstream
E&P company while approximately 29% of the membership works for a
service company or makes a living as a consultant. In my 22-year career
I've spent nearly 14 with a major (operations and research), 4 as a sole
proprietor/consultant and 5+ with an integrated service company. If nothing
else, you can say I have a well-rounded perspective on this subject.
Regardless of the era or economic climate both client companies and service providers have a relatively constant set of expectations and issues in regard to dealing with one another. Underlying the entire relationship is the premise that a client company has cash flow due to exploration success and profits from production or downstream operations. Client companies have every right to their expectations and need to hold service companies and consultants to their commitments.
Client Company Expectations
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Value for the money
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Deadlines met
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Quality performance
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Maintenance and application of state of the art technology
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Professional ethics and confidentiality respected
Client Company Fears/Concerns
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High degree of outsourcing leads to numerous data sources, formats, work-styles that may not be "the company way", worst case scenario leads to low quality deliverables
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Uncertainty about the experience level or competency within the contractors' shop
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Accounting burden of numerous vendors and providers
Upstream companies, and by extension the managers and technology coordinators that negotiate with service providers, are under considerable pressure to keep costs low. The 80% solution has become the norm such that when compromises are made the real results may represent a 60% or 70% solution or worse. Another cost saving has come from the dramatic reduction in R & D budgets, staff and labs. R & D efforts have been shifted to the integrated service companies and software developers. Short-term savings are achieved but could this not be viewed as a false economy when multi-million dollar, or even billion dollar decisions are based on less than the best information?
Service providers have their own unique set of expectations and issues. They also have every right to expect clients to negotiate in good faith, meet commitments, and cooperate in all ways to make the project or research successful. In an effort to meet client expectations and address client issues, many, if not most, service companies are staffed with a proportionally large population of senior-level technologists and geoscientists. Many of whom come straight from the downsized R&D divisions of the upstream companies. To the clients' benefit, those senior staffers bring a vast cumulative knowledge base to the table. Service companies are also expected to utilize the latest technologies in the form of software, hardware, and data acquisition techniques. That knowledge base and infrastructure must be supported with state-of-the-art resources, salaries, benefits etc. in order to be readily available to the client companies. The cash flow of the consultant or service company doesn't come from the ground but rather comes from a steady stream of projects sourced from the upstream companies. If that flow is erratic, unpredictable, or ceases entirely, the ability of the service providers to support that valuable knowledge base is greatly hampered. The lone consultant simply leaves the industry altogether and those skills are permanently lost.
Service Provider Expectations
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Competitive yet equitable fees for services rendered or data licensed
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Scheduling commitments met
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High-quality input data
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Professional treatment and timely payment
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Support for R & D through consortia, multi-client funding
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Profit is not a dirty word
Service Provider Fears/Concerns
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Fees - if you negotiate a price 40% off normal, don't be surprised to receive the 60% solution to your problem; you get what you pay for.
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Scheduling - Client A predicts a start date for "the project" yet actually "the project" doesn't begin until months later while the service provider scrambles to fill the hours. Subcontractors are strung along, become frustrated, or commit to other projects and become unavailable.
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Input data - All too often service providers spend days or weeks extracting and QC-ing necessary data from unresponsive clients. "The project" can't begin without the full data set yet the clock has begun ticking against those deadlines.
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Technology support and software licenses must be maintained with or without 100% utilization
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R & D projects abandoned before full maturity
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Profits that could be directed toward technology research and development are shaved away
The business world is tough and competitive, as it should be in a capitalistic economy, and our business may be viewed as tougher than most. Nonetheless, it appears to me that some current trends are disturbing. Intense pressure for short-term profits and low costs has eroded the ability of the industry to have a long term view and support the technological infrastructure that is so critical to success. One result of 15+ years of downsizing, is that upstream companies no longer support the same degree of internal technological research and development they once did, supported by a fraction of those production profits. The organic relationship between the internal researchers and technology providers has shifted outward without the support of a steady budget. More and more, the R & D and technological advancements are demanded from the service companies, and even consultants, yet the steady flow of profitable contracts and projects is diminishing. I fear the end result will be two-fold. First, the formerly large population of highly skilled technologists will steadily shrink. Second, we are in danger of experiencing a slow-down in technology development or even stagnation without the cash available to support R & D in its new environment.
The next time you are negotiating with a service company or consultant over the costs of that next field study or your share of a research consortium to develop the latest black box device, take pause and give some thought to all the behind-the-scenes activity connected to that effort. What would you do if that person or that service company was not even in business the next time you needed them? Is it worth your while as a manager or company representative to foster their continued success? If the answer is yes, deal accordingly and in a fashion that breeds continuing success for both parties.