The Wood Group was founded in 1912

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Background:

The Wood Group was founded in 1912 by Wood and Davison which the company used for marine engineering and ship repair firm to services the fishing fleet. In 1970's oil & gas reserves were discovered in the North Sea and presented an ideal opportunity to convert marine engineering experience into engineering and support services (1). During the late 1990s Wood Group Engineering (North Sea) became a market leader in the North Sea providing integrated engineering, operations and maintenance services to BP, Shell, Talisman, Amerada Hess, BG, Enterprise Oil and ChevronTexaco (2). The company is now a leading independent services provider for the oil & gas and power generation markets. Currently the main focus of the company is for the environment by establishing the renewable energy services group and expanding their operations for alternative energy industry.

Wood Group also known as John Wood Group is energy services provider. The company is organised into to three divisions:

1. Engineering and production facilities

2. Industrial gas turbines overhaul

3. Production support

In engineering field, their expertise extends to upstream, midstream and downstream oil & gas and power generation markets (14). Their global customers are large integrated operators, national oil companies & independent operators (15).

The core strengths of Wood Group are: facility operations & maintenance, field service of pumps, wellheads and valves clients, procurement & construction management, deepwater topsides, rotating equipments, power solutions, and renewable energy.

Wood Group operates mainly in Europe and North America. It is headquartered in Aberdeen and employs about 29,000 worldwide and operating in 50 countries (3). In 2009 Wood Group recorded revenues of $4,927.1 million, the operating income of $298.5 million and the net profit of $164.2 million (5).

Wood Group vision is to be a leading global energy services provider (4). The company global reputations has been built upon decades by offering a broad range of integrated services across the asset lifecycle and successfully managing the most complex engagements for their clients. They consistently seek to provide services and products that are recognised as market-leading (4) and attempt to exceed their customers' expectations and deliver superior returns .Wood Group strategy is to achieve long-term sustainable growth by adding value to their customers' operations with world-leading highly differentiated products and services(4).

PESTLE

PESTLE analysis describes the macro-environmental factors used for environmental scanning components of strategic management. It can be use for reviewing a situation, direction of a company, a marketing proposition, or an idea. The analysis is a useful tool for taking advantage of the opportunities and reducing the threats. It is difficult to manage a business in an efficient way if the external organisation factors are unknown.

Figure 1: Macro-Economic Environment

Summary of PESTLE:

Political

World energy product markets have been increasing because of the threat of geopolitics instability.

Due to Co2 emission, government has set pressure on industry to improve and produce more sustainable form of energy

There are trading polices with certain countries

There are restriction to import and export to certain countries

They are restriction doing business with certain countries.

Fines for industry that pollutes the environment.

There are government taxes and price controls

Economics

Alternative high -quality energy technology increases the company's revenue as customers seek for less greenhouse gas emissions

Companies benefit by producing certain products from developing countries due to its cheaper labour cost.

Market is unstable as world economy is coming out of a world recession

Global economies are expected to grow within few years and energy demand will grow again.

Social/culture

Lately the nation has become more concern about the environment and their view has been more encouraging for renewable energy product.

Life expectancy is relevant to the company's labour force. Company benefit in countries with higher life expectancy.

Healthy workplaces for oil and gas industry services are essential for long term success.

Technological

Renewable energy technologies have increase to reduce the fossil fuels. E.g. technologies such as wind power, tidal wave, hydroelectricity etc.

Governments are now providing tax advantages and other subsidies to achieve further competition for alternative energy against oil and gas.

Lots of research and development have taken place to promote further renewable energy.

Legal

The policy includes strong new safety standards for offshore drilling including demonstrations of ability to respond to future blowouts.

Heavy penalties for safety violations.

Carbon taxes i.e. penalties for polluting the environment at a certain level.

Legislative measures are used in order to force business into behaving in a more environmentally sound manner

Different legal policy in different countries.

Environmental

Due to concern over the risk of global warming, a number of countries have adopted regulatory frameworks to reduce greenhouse gas emissions

High quality technology has been researched for better alternative energy performance to reduce fossil fuel and cause less pollution to the environment.

Industries have been using program to identify ways to reduce carbon by:

managing waste more efficiently, using piloting carbon footprint measurements and exploring potential solutions for saving energy.

(Description and detailed information of PESTLE are found in Appendix (A).)

SWOT analysis

SWOT analysis stands for strength, weaknesses, opportunities, and threats that involves in a business venture. Strength and weaknesses is the internal environment where as opportunity and threats are the external environment. This involves the firm's ability to set objectives and identify the external and internal environments that are desirable or undesirable to achieve that objective. The perfect outcome of the SWOT analysis is to minimise the weakness and maximise the strengths in order to overcome the threats and take advantage of external opportunities.

SWOT Table:

Positive

Negative

Internal Environment

Strength:

Wood Group has established its name due to its existence for nearly hundred years. Therefore this gives customers security advantages when dealing with the organisation (high brand recognition).

Tax advantages have been offered for producing renewable source of energy to reduce fossil fuel and the nation's pollution.

Wood Group organisation is diversified into 50 countries shows the company's growth with a strong and experienced team.

Growing operations in the Middle East, Africa and Asia Pacific (8)

Wood Group is a leading independent services provider for the oil & gas and power generation markets.

Core strengths of Wood Group are: field service of pumps, deepwater topsides rotating equipments, power solutions, renewable energy and many more.

High quality and skills of its employees

Acquisition of Baker Energy established market leadership in the US Gulf of Mexico; strengthened position in the growing deepwater market and added a further 500 people in Africa (8).

Weakness:

World recession, volatile financial markets and lower oil and gas prices contributed to a reduction in global E&P expenditure of around 15% in 2009 (8).

Regarding customer's domains, they are still insufficient for full optimal knowledge.

The product prices are too high causing fewer customers too buy.

Wood Group operating in many countries can cause confusion and difficulties for the project manager to organise. Also the performance of Wood Group is greatly influenced by the legislative and political conditions of these countries.

External Environment

Opportunity:

Wood Group has been able to operate in countries such as Iraq which was previously too risky.

Governments provide opportunity for high quality technology research for improved alternative energy performance.

Industries have been using programs to identify ways to reduce carbon by:

managing waste more efficiently, using piloting carbon footprint measurements and exploring potential solutions for saving energy.

Increasing demand from customers for sustainable technological

Growing demand for environment improvement, mobility solution, energy management and control which makes the company more demanding.

Global economies are expected to grow within few years time and energy demand will grow again.

Threat:

Weather can have significant effect on the production of power such in wind turbine.

Heavy penalties for safety violations.

Penalties for polluting the environment at a certain level.

Technology advances from other energy services provider.

Competition from international suppliers.

World recession causing a decline in incomes has increased the rate of unemployment which has affected the discretionary buying consumer's behaviour which results in a negatively impacted of the company's sales.

5 forces analysis

Porter's model of competitive analysis identifies five forces in an organisation's environment that influence the competition. It is commonly used tool for competitive environment and its attractiveness of a market.

Figure 2 - Five forces of analysis (12):

Barriers to Entry (High)

This force describes the level of entry of other companies to enter this type of industry. If the entry of the company is high then the company would lose it profitability. Barrier to entry for these type of industry are high due to:

Large access to the suppliers and distributors ensuring widespread energy provision.

High technology cost

Dominated by major players

Mature market

Strict government policy and environment regulation requirements to operate in oil & gas and energy services industry.

High capital cost is required to accomplish cost leadership which is essential in energy provision.

Set-up operations are expensive

The ethical brand identity is important due to the nature of market (loyalty as a barrier).

Existing players have close customer relations .e.g. from a long-term service contacts.

Technological focus for alternative energy requires high proprietary learn curve.

Competitive Rivalry - (medium)

This force describes the intensity of competition between existing companies (6). Within the oil & gas and energy services provider the competition rivalry between existing players are medium because of:

High exit barriers.

Not many major players in this type of industry.

High capital costs

Companies with similar strategies

High industry growth as alternative energy is essential for the long term future of the business.

Various rivals in rationale for strategies to invest and enter the industry.

High switching cost

Threat of substitute - (low)

Threat of substitute exists if there are alternative products with a lower price for better performance parameters for the same purpose. This would reduce the demand for a particular product and therefore would be a threat to consumers switching to alternatives.

Threat of substitute is low because there is lack of alternative renewable energy within industry and only large industry can afford these renewable energy products.

Threat of substitute would be high if a company provides the latest technology and specialised services.

The threat would be high if a company sells the product at a cheaper cost.

Bargaining power of buyers - (low)

Bargaining power of customers determines how much customers can impose pressure on margins and volumes. The buyers for energy service industry hunt for excellent quality product but with lower prices and for a better contract term. Bargaining of power for these industries is low because:

The brand loyalty is high

Availability of substitutes is low

Buyer incentives is high in terms of energy provider buy-backs and tax breaks

Buyers volume are low

Low bargaining force of buyers

Low elasticity

Switching to alternative product is difficult

Bargaining power of suppliers - (high)

Bargaining of supplier is the input required in order to provide the goods. The bargaining power of suppliers is high because:

The market is dominated by few large suppliers

The switching cost are high

There is not much substitute for providing field service of pumps, wellheads, rotating equipments, power solutions, and renewable energy etc.

(Description and detailed information of five force analysis are found in Appendix (B))

The Value Chain

Figure 3 - Value chain with examples (13):

The value chain describes the primary and support activities and exams the development of competitive advantage of the business. The value chain was created by Michael Porter which has been used as powerful analysis tool for strategic planning of an organisation since 1980. It is a great tool to improve the company's performance. Profit margin is based on how the value chain is managed. The aim of the value chain is to create a value that maximises the cost providing the product or services, thus generating profit margin.

The value chain organisation activities are split into three main elements - primary activities, support activities and margin. Primary activities are those that directly related with creating and developing a product. This activity may be vital in developing a competitive advantage for example logistic activities are critical for a provider of distribution services. Support activities are not direct related to the product but provide necessary efficiency and effectiveness of the firm.

Primary activities

Inbound logistic:

Since Wood Group is a leading independent services provider, it uses its leading economies and market position as main bargaining powers to accomplish low costs from its suppliers. Oil and gas section for Wood Group, the industry plans to produce maximum efficiency in its extraction process. Inbound logistic activities for oil & gas section are comprised of an oil tankers, series of pipelines and transport of the extracted crude oil to refining plants. Wood Group effective and efficient logistics operations are by using low cost of crude oil transportation. This gives the company cost advantage and increasing their profit margin.

Operation:

Wood Group has many operation activities since it's the company divided into three main divisions. They provide scalable, integrated operation & maintenance resources around the world, including oil and gas field (14). Refining is the operating activity for engineering sector that mainly involves downstream of oil & gas. Other operation activities include: maintenance/overhaul of compressors, pumps, marine operations, mechanical, rotating equipment, instrumentation & electrical modifications.

Overall, the Wood Group benefited from a robust performance from their production support related activities (Production Facilities, Electric Submersible Pumps) offset by reduced volumes and margins in development related businesses (8).

Outbound logistic:

Wood Group maintains a leadership for independent engineering provider for pipelines and subsea developments due to its efficient and effective outbound logistics. Their reputation is built upon strong technical excellence and efficient project delivery (10). For this reason, they have gained longer term-relationship with their customers.

Sales and marketing:

Wood Group has excelled in sales due to its increasing sustainability and more environmentally friendly energy. They have been using programs to identify ways to reduce carbon by (9):

Evaluating work practices and processes that could adversely affect the environment

Managing waste more efficiently

Piloting carbon footprint measurement and reduction initiatives

These ways to reduce carbon has promoted the Wood Group sales as they offer less adverse to the environment compare to other companies.

Wood Group technology advances have discouraged their competitor's customers. They offer wave systems, wind turbines and other renewable energy project technologies to maximise the availability of energy. Also new oil and gas developments will be increasingly focused on harsher environments - deeper water, subsea, arctic regions and oil sands (8). With their high differentiated products and services in these areas, they are in good position to benefit with their global customers.

Service:

Wood Group provide worldwide services such as field service of pumps, repair & overhaul of turbines, high speed rotating equipment, and facility operations (17). Wood Group highly differentiation product, services and leadership had increased an importance place on customer's service.

As previously mentioned, Wood Group establishing the renewable energy services group and having a reliable project deliver service has increased the customer's attention.

Support activities

Human resource management

For Wood Group safety comes first and it is important to maintain a healthy workplace to prevent accidents. For numerous years, Wood Group has demonstrated high standards for safety, health and environment.

Wood Group has improved its services by reducing it injures in the business by (9):

Ensuring their personnel are properly inducted and trained

Improving asset integrity and process safety to mitigate the major hazards

Ensuring proper security and emergency response plans are in place and tested

Wood Group aims to improve the quality of occupational health management by (9):

maintaining a healthy workplace

controlling more effectively the health risks arising from our activities

promoting the benefit of healthy lifestyles for our employees via campaigns and health fairs

There are also programs to reduce carbon which was previously mentioned in sales and marketing activities.

Firm Infrastructure

Firm infrastructure involves an important role in the competitiveness of the company. In oil and gas section of Wood Group, the company's vast supply and distribution logistics network is a prime example of the infrastructure lowering costs for Wood Group. Wood Group seeks least costly oil & gas field to keep its cost low. They find easily extractable oil & gas fields and operates their low cost and efficient extraction operations.

Technology development

The technology development activity is an important support activity for Wood Group. Wood Group invests a lot of research and development that is able to produce high efficiency for renewable energy and dropping the pollutions to the environment. The company might not able to make profit due to high technology cost, so by investing in research and development can also produce new technologies to make their operation cost effective.

Wood Group has introduced a Scansafe technology to help protection from their IT department. Scansafe provides web security to ensure safe and productive environment for businesses. ScanSafe solutions keep malware off corporate networks and allow businesses to control and secure the use of the Web (19). According to the IT infrastructure manager of Wood Group, Scansafe's technology has been 100 percent effective and made significant cost savings in using ScanSafe and has found the solution to be more effective than the security model they had in place previously (19).

Procurement

Since Wood Group operates in 50 countries, sometimes staffs and project managers need to travel into different countries. Wood Group provides the travelling staffs travel expenses, temporary offices, hotel and even strategic consulting.

Conclusion

From the SWOT and PESTLE analysis it shows Wood Group is in strong position as they are successful in many aspects and as an energy service provider they offer solution to maximise the availability of renewable energy. Since the world is running out of fossil fuels, the world's nation needs alternative energy to power growth and reducing the greenhouse gasses of the environment. Wood Group has been using many programs to maximum in its health, safety and environmental. For these companies, government has backed such company by providing tax advantages as it could solve many of the energy problems that are face today.

The company has established its name and operates in many countries which provide customers security advantages when dealing with the organization. However, a company operating in many countries can cause difficulties and confusion for the project manager to deal within the organization. Some countries like Russia and China that Wood Group employs have different policies could lead to problems to do certain business. This aspect could be a possible weakness within the company. Also Wood Group has reduced its revenue in 2009 compared to previous years due to the world recession. This has cause a decrease on the employment which has affected the discretionary buying consumer's behaviour which results in a negatively impacted of the company's sales. However, it is expected the energy demand to grow again and bring Wood Group revenue back up again.

Low threat of entry indicates only major players within these industries can afford to be in this type of industry and new players find it difficult to enter mainly due to high capital cost, strict government policy and environment regulation requirements. This indicates the competition within this type of industry is friendly. Low threat of substitute shows Wood Group products are unique and other companies don't have much alternative technology to offer at a cheaper price. There are moderate rivalries within this type of industry, but Wood Group is in strong position as it has its technology advances and offers excellent technical and project delivery. Wood Group has many core strengths such as field service of pumps, facility operation & maintenance, rotating equipments, power solution and renewable energy (10). They also use strong research and development to make their operation cost effective to maintain with its leading player. Wood Group high differentiated products and services have benefited their global customers. As a result the analysis of the value chain and 5 forces has also shown Wood Group is in good position for oil & gas service industry.

Overall from these analyses together shows Wood Group is in a strong business position and it's successful in many of its division. Wood Group is the world's leading solution-independent engineering and management services provider for subsea developments and pipelines (10). Their reputation is built upon strong technical excellence and efficient project delivery (10). In 2009 Wood Group recorded revenues of $4,927.1 million, the operating income of $298.5 million and the net profit of $164.2 million (5). High figure of the net profit shows the company is in excellent business position.

Appendix (A) -PESTLE

Political

For providing energy resources, the oil and gas services industry must follow both local and federal government regulations. There are potential sanctions and fines which could be set by various governments.

Wood Group operating in a globalised environment with industries around the globe (operates in 50 countries globally in continents such as Australia, Europe, Middle East and the U.S.). Since it is operating in various countries, its performance is greatly influenced by the legislative and political conditions of these countries.

Their operations can adversely affect by political or regulation developments are:

Access limitations - Various countries have restriction to export and import for certain products. Also numerous countries limit access to their oil & gas and other resources.

Fines - There could be potential sanctions and fines by the governments if they don't follow their legal procedure. Government wants to make sure their product is environmentally friendly.

Restrictions on doing business - As a British company, Wood Group is subject to laws prohibiting British industry from doing business with particular countries. Wood Group business has been strained with countries like Iran as they have been sanctioned.

Regulatory - Even in countries with strong legal systems where Wood Group does business, they remain exposed to changes in law that could adversely affect their results, such as government royalty rates or increases in taxes; price controls; or other laws that increase their cost of compliance.

Economics

Economic factors are of concern to Wood Group because they are likely to influence prices, demand, costs, and profits. One of the most significant factors on the economy is the global oil market prices that are primarily influenced by demand and supply forces. Price pressure increases if there is a supply shortage. This may be due to factors such as (7):

Unplanned refinery shortage

Unexpected demand increases

Pipeline problems

Company's revenue will increase if they provide good quality sources of alternative energy as government seeks environmentally free energy source. Market is unstable as world economy is coming out of a world recession and lower oil and gas prices contributed to a reduction in global E & P expenditure of around 15% in 2009(8). However global economies are expected to grow within few years time and energy demand will grow again.

Social/cultural

The company involves in many countries where population age, health and attitude vary. By identifying differences and similarities in culture to gain a better understanding of the culture issues related to the industry. Lately the nation had become more concern about the environment and their view has been more encouraging for renewable energy product.

Health and safety are one of the main goals of Wood Group's business principles. Achieving and maintaining high standards of performance in health and safety involves an integral role in the sustainability of their long-term reputation and success. As health is part of Wood Group's vision, their goal is to improve the quality of occupational health management by (9):

Maintaining a healthy workplace

Controlling more effectively the health risks arising from their activities

Promoting the benefit of healthy lifestyles for their employees via campaigns and health fairs

Life expectancy is relevant to the company's labour force. In developed countries their life expectancy are high and therefore the work force labour would be greater compare to the developing countries.

Technological

Renewable energy technologies have been increase to reduce the fossil fuels. Governments are now providing tax advantages and other subsidies to achieve further competition for alternative energy against oil and gas. They also promote research for new technologies to increase alternative energy sources and reduce the cost. Wood Group delivers solutions to maximise the availability of wave energy systems, wind turbines, and other renewable energy projects. Wood Group is expanding its reach into the renewable energy industry and offers a dynamic set of specialised technical consultancy services to meet the needs of their global customers.

Wood Group is the world's leading solution-independent engineering and management services provider for subsea developments and pipelines (10). Their reputation is built upon strong technical excellence and efficient project delivery (10). Wood Group are technologies leaders in numerous areas such as cryogenic pipelines, remote sensing, pipeline stabilisation and flow assurance.

Legal

Mixtures of government policies and legislations have a direct impact on the performance of Wood Group. Employees of Wood Group based in countries like Russia and China have different policies to the local rules.

National governments are concern with the environmental issues, therefore legislative measures are used in order to force business into behaving in a more environmentally sound manner. The policy includes strong new safety standards for offshore drilling including demonstrations of ability to respond to future blowouts and heavy penalties for safety violations.

Environmental

Due to concern over the risk of global warming, a number of countries have adopted regulatory frameworks to reduce greenhouse gas emissions. These include carbon taxes, increase efficiency standards and incentives for renewable energy. These requirements could make Wood Group reduce the demand for hydrocarbons and their products become more expensive.

Wood Group has attempted to minimise CO2 emissions for their operations. In 2009, they introduced a carbon footprint pilot programme to help a better understanding of carbon management and identify ways to reduce carbon use throughout their operations (11). The program includes managing waste more efficiently, piloting carbon footprint measurements and explore potential solutions for saving energy.

APPENDIX B - 5 forces

Barrier to entry (high)

There are many oil & gas industry services companies in the world, but barriers to enter to these types are enough to prevent the serious companies. Barriers to entry are high due to the high capital cost, significant regulatory environment and existence of scale economies are required to operate within the industry. This indicates the competition is friendly.

Recently oil and gas service industry is growing at a very strong rate which is attractive to new entrants as alternative energy is essential at this time of the world. However due to present economic difficulty has contributed a large decline in attractiveness in these industries which deterrent the potential entrants. To maintain with the leading players in the industry, strong research and development capability is required (16).

Competitive Rivalry - (medium)

It is significantly important to look at the particular region in which the company operating to analyse an energy company. The customers can choose their product by their companies' services standard and speed of delivery of their product. Technology can change the nature and the basis of rivalry among existing competitors in several ways. It can dramatically modify the cost structure and hence affect pricing decisions. The role of technology in product differentiation and switching costs are also important in rivalry. Technology advances can also impact on the rivalry exit barriers.

Wood Group main rivalries are Aker Solutions, AMEC, KBR, Technip, Worley Parsons, and Baker Hughes (20). Wood Group is a leading independent services provider for the oil & gas and power generation markets (17). Wood Group global reputation has been built by successfully managing the most complex engagements for their customers and offering a wide range of integrated services across the asset life (17) has noticeably increased the profitability of Wood Group business.

Threat of substitute - (low)

The threat of substitutes for energy services are low as they are generally only gas, wind power, solar power, coal and hydroelectricity. Therefore they are not much substitute for renewable energy and only big company can have those products due to a high capital cost. The threats of substitute for these types companies are usually with those who offer better technology and specialised services such as directional drilling.

Bargaining power of buyers - (low)

The bargaining power of buyers for Wood Group has increased as they developed strong relationships with their customers by providing reliable project delivery and cost-effective. Their success in these areas is established by the continuing relationships with: the integrated operators, national oil companies, independent operators and power companies throughout the world (18).

Bargaining power of suppliers - (high)

The energy services companies are mostly dominated by major companies. For these types of industries large amount of capital investment are required significantly to reduce the number of companies and increase the power of existing players in the industry.

The oil and gas services suppliers in UK are threatened by large companies able to source their product abroad at cheaper deals.

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