Organization summary
Formerly known as Arabian American Oil Organization, Saudi Aramco is a public Saudi Arabian worldwide petroleum and natural gas firm with headquarters in Dhahran, Saudi Arabia. It focuses on petroleum and petrochemical goods. The company was founded in 1933 following a concession agreement between the Saudi Arabian government and the SOCAL business of California (Argaam, 2020). Although in its inception, the company began oil drilling activities in 1938 and expanded to generate over 500,000 barrels of crude oil per day.
Saudi Aramco produces around 200 million barrels of crude oil since it is one of the world’s most profitable companies. Therefore, it is the greatest oil-producing company in comparison to all other oil-producing companies. Furthermore, it has more than 270 billion barrels of crude oil reserves, making it the nation with the second-largest confirmed crude oil reserves in the world. After beginning trading in December 2019 on the Tadawul stock exchange, Saudi Aramco’s stocks soared to 35.2 riyals, equating to a market value of around $1.88 trillion; this figure was surpassed on the second day of the trade when the market value surpassed $2 trillion (Yeo, 2019). The vertically integrated mining structure must be adjusted if Saudi Aramco is to reduce its operational expenditures while maximizing the company’s profitability.
Need for change
As a global organization, Saudi Aramco was forced to adjust a variety of operational facets in order to meet its profit-making and technical progress targets and its development plan. As swiftly as Saudi Aramco was making profits, it was unable to accomplish the company’s vision and objective, necessitating a transition. The crown prince feels the vertically integrated mining system is essential for the firm to become a significant participant in the petrochemical industry. Unfortunately, the company lacks the capacity to process the vast quantity of produced crude oil, making the acquisition necessary. The acquisition of SABIC is part of Saudi Aramco’s long-term downstream plan to boost its capacity to refine crude oil and petrochemicals, therefore producing more value. In addition to its core business strategy, which comprises metals, specialty chemicals, and petrochemicals, SABIC has established joint ventures that provide new solutions for the petrochemical sector. Consequently, the addition of SABIC to Saudi Aramco will boost and extend its refining capacity and supply chain, production, sales, and acquisitions. Due to the mutually advantageous nature of the deal, SABIC obtains access to Saudi Aramco’s petrochemical refining industry (Seznec, 2020). Additionally, it will have control over its assets, especially its financial resources, enabling it to capitalize on additional economic activities.
Additionally, technical advancements necessitated the corporation’s adoption and use of new and updated machinery, which required qualified operators. In addition, a transformation in strategy and missions was necessary. Since the objective and vision involved generating profits and technologically dominating Saudi Arabia, the established strategies for execution and deployment had to be amended in order to accomplish the vision (Al- Ghamdi et al., 2020).
Strength of the need for change
The firm has an ongoing and fundamental need for reform. Saudi Aramco was required to establish new processes to accelerate its development strategy in order to achieve its planned objectives. In addition, Saudi Aramco must swiftly modify its operations in order to maintain and expand its national and shareholder value. Furthermore, the shift meant that the company would be able to control itself more effectively and increase production.
Source of the need for change
External and internal pressures pushed this necessity’s demand. The company’s upper management concluded that the company’s performance needed to be enhanced. In addition, top management desired to guarantee that the company maintained its market reputation, leaving no gaps for competitors in the same industry to fill. As external influences, existing competition, and the entry of new competitors in the same field exacerbated the need for change, the rate of transformation quickened. To increase their output, Western companies, including Exxon Mobil, have cooperated with Middle Eastern companies. Companies such as Rosneft worked with distributors to expand their supply bases (Al- Ghamdi et al., 2020). In order to modify its operations, Saudi Aramco had to reorganize its production, refining, and distribution of petroleum products.
Impact on the organization if change does not occur
If the firm does not implement the proposed change process, the organization will stagnate while it might be earning more if it adopts the idea. In addition, the firm risks incurring greater losses if it ignores productivity-enhancing enhancements. The continual development of new competitors will cause Saudi Aramco to lose industry confidence and ultimately incur losses. The worst-case situation is if the company files for bankruptcy and fails.
The change process
Saudi Aramco used Lewin’s method to change management in order to obtain a deeper comprehension of organizational and structural change. Lewin’s model of change management is comprised of three crucial stages: unfreeze, transition, and refreeze, which all contribute to the change process (Stouten et al., 2018). During the defrosting process, preparations are made. The workforce is notified of the significance of the transition, therefore promoting open communication. It is crucial to overcome employee opposition and resistance. Throughout the 2017-2018 fiscal year, Saudi Aramco completed the first defrosting stage. It analyzed the company’s current state and identified the refining and petrochemical processes as required change (Seznec, 2020). Due to SABIC’s recent success in both locations, management concluded that acquiring a majority of the company’s shares was a reasonable alternative. In 2018, employees were notified, and conversations with SABIC commenced. In the same year that the two sides reached an agreement, a public notice was issued to inform the employees of upcoming changes.
The second step entails implementing the new organizational structure and processes. Having recognized the necessity for adjustment, it was implemented in 2020. Workers were encouraged to collaborate in order to implement the new modifications. After securing the requisite pre-closing regulatory permissions, Saudi Aramco was scheduled to buy 70 percent of SABIC for $69.1 billion in June 2020. (Argaam, 2020). According to the supplemental agreement, Saudi Aramco and the Saudi Arabian government would acquire the shares through a series of credit payments from 2020 to 2022. The final element of the method comprises the firm refreezing its activities after the update has been implemented. The final element of this modification model is the refreeze phase. After a discussion of the significance of the change, employees and management people now incorporate the necessary alterations into their day-to-day operations. This transformation approach has been effective, despite the fact that Saudi Aramco is in the last stages of its efforts to integrate SABIC’s financial performance with its own. In addition, management is able to monitor the performance of operations since the change process includes elements before, during, and after the transition (Alqatawenah, 2018).
Company’s readiness for change
Saudi Aramco applied Lewin’s transformation framework well (Memon, 2021). The firm spent two years developing a change justification, which was presented to all key parties. They included the government of Saudi Arabia, the general public, its workers, and shareholders. The defrosting stage was given enough time to ensure that all investors and workers were informed of the upcoming shift and that there were no misunderstandings (Stouten et al., 2018). Similarly, the business helped the second phase in July by ensuring that all essential documentation was filed, following the applicable buy processes, and preparing a two-year procurement strategy for SABIC. As SABIC’s finance systems are incorporated into Saudi Aramco, the ongoing third stage will also be successful. Due to the enormous size of both enterprises, the official merger might take considerably longer, postponing Saudi Aramco’s goals. In this instance, implementation of the ADKAR framework will also be effective (Alqatawenah, 2018). The ADKAR paradigm entails ensuring that all gaps are discovered in a timely way, with an emphasis on the organization’s goals. In addition, it ensures that both the individual and organizational aspects of change are incorporated.
Conclusion
Since its founding, Saudi Aramco has been a profitable enterprise. Although it was one of the big four, the firm had to undergo a change in order to reach its optimum profitability. Following Lewin’s change framework, the firm was able to purchase SADIC and expand its base. In addition, the newly implemented enhancements were effective in satisfying the company’s requirements and assuring the attainment of its objectives and targets. The created framework required defrosting the current situation by recognizing the need for change, modifying the daily conditions, implementing the adjustments, and then freezing the condition once again. Utilizing this system, Saudi Aramco was able to accomplish its yearly goals. Although the company is still in its third stage, it is functioning well and achieving its goals.
References
Al- Ghamdi, S. M., Kazmi, A., Sohail, M. S., & Aldhafeeri, A. (2020). Barriers to change implementation process by public and private organizations in Saudi Arabia. Journal for global business advancement 13(1), 88-107.
Memon, F. A. (2021). Improving Employee’s Engagement in Change: Reassessing Kurt Lewin’s Model. City University Research Journal, 11(1).
Argaam. (2020). Saudi Aramco completes the acquisition of a 70% stake in SABIC. ArgaamPlus. Retrieved from: https://www.argaam.com/en/article/articledetail/id/1384099
Stouten, J., Rousseau, D. M., & De Cremer, D. (2018). Successful organizational change: Integrating the management practice and scholarly literature. Academy of Management Annals, 12(2), 752-788.
Oxford Analytica. (2020). Saudi Aramco signals fresh momentum behind IPO plans. Emerald ExpertBriefings, (oxan-DB).
Alqatawenah, A. S. (2018). Transformational leadership style and its relationship with change management. Verslas: Teorija Ir Praktika/Business: Theory and Practice, 19, 17-24.
Yeo, R. K. (2019). From operational excellence to organizational significance: setting the tempo for change. Strategic HR Review.
Seznec. J. (2020 January 12). The Saudi Aramco-SABIC merger: How acquiring SABIC fits into Aramco’s long-term diversification strategy. Atlantic Council. Retrieved from: https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/the-saudi-aramco-sabic-merger-how-acquiring-sabic-fits-into-aramcos-long-term-diversification-strategy/
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