Saudi ARAMCO is one of the largest company in the world by assets. The company position as largest among peers might not remain the same for many coming years unless they up their game in R&D and technology. The strategic alliance is one of the fundamental ways that the company can consider to ensure they remain competitive by exchanging worthy ideas and strategies. There are many challenges in strategic alliance including difficulty in finding the best partner, inability to know when the alliance is no longer viable and inability to establish trust among the parties. Using both descriptive and normative decision theory, the alliance can be able to find worthy methods and technique that can move them forward.
Introduction
The strategic alliance is an agreement between two or more companies to collaborate in attaining set objective while remaining independent. Saudi Aramco is an oil and gas company that deals with exploration refining and distribution of petroleum products. The company is considered among the largest company by asset in the world— the company deals with oil product which are products that can be depleted. Therefore, the future of the company is based solely on its ability to think beyond many years. It is, therefore, having a worth strategic partner in the rich region like Europe can be a real gold source for the company. One of those partners that will also greatly benefit from the strategic alliance is British Petroleum Company. BP plc is one of the greatest company in the oil and gas industry across the world. The company also deals with exploration, processing, and distribution of oil products. The company operates in over 70 countries across the world. Oil and gas production has high competition across the world from all the continents. Therefore an alliance with another great company in the industry can greatly assist the companies to achieve a great profit making goals. Despite having a strategy, there are always risks involved in the process. According to vision 2030, Saudi Arabia is seeking to lower oil dependency level in the country. The goal is to diversify the economy such that in case of depletion of oil filed the country will not have issues moving forward since their economy would have diversified.
Challenges
One of greatest challenge in forming a strategic alliance is choosing the right partner. This issue starts to crop up immediately or in early stages of forming a strategic alliance (John, 2011). Choosing the wrong partner can be damaging to the business as it might not result in the desired goals. The wrong partner in the petroleum industry might pursue a different strategy from those agreed or to those that are favorable to the partner thus resulting in a poor outcome. One of the greatest challenges of Aramco is that it is a state-owned corporation meaning that it is directly involved in government politics. One of the political situation in the Middle East today is the disagreement mostly between Saudi Arabia political position in the areas and those of Iran. Iran is also a major oil producing country in the world. Therefore, they are directly a competitor to ARAMCO. Therefore the selection of the partner should not only be based on business strategy but also a chain of other things including the political factor of the partnering company since if the other company pursue or have an influence that is considered dangerous to ARAMCO, then BP is not the right partner for the business. Besides BP strategy might also be contradictory to those of Aramco. For instance, ARAMCO is seeking to diversify its operation to enter ventures that t would prove to be sustainable in the future. On the other hand, BP might have a future that seeks to narrow its business to only concentrate on petroleum product. If so then, ARAMCO needs to find another partner that would have a related strategy that focuses on sustainability issues.
Another great challenge is building a mutually beneficial relationship. The alliance entered should always be beneficial to either party. Without having a mutually beneficial alliance, there is a high chance that the alliance will not last (John, 2011). Both companies have an interest of maximizing profit; therefore if alliance will be in any way a problem to other business in such a way that it limits their ability to make money, then there is a high chance that the alliance will break and not result to the desired results. One way of allying that will result in both companies benefiting is to check the problem each company faces these problems are opportunities which can be filed by either company thus resulting in mutual problem solving and mutual benefits. Above all, the most important thing is that the relationship should not be forced but should exist from the need of each company. After solving the benefits issues, another key challenge is keeping the alliance beneficial to both parties. To achieve such desires is not easy but the companies should always find a way or new challenges to keep them in a good relationship that would result in a longer beneficial alliance.
Another key challenge is upholding trust and honesty. The partnership between Aramco and BP have money and interest being involved. Without trust and honesty, such an alliance is bound to fail as either party may feel that they are not being treated equally by either party (Mckeon, 2014). Therefore, before entering into a partnership, it is important to discuss what if scenarios that might occur down the road thus failing the partnership. Knowing what might happen and their consequences are very important as it can assist in making the right decision that would be based on trust and honesty rather than underhand techniques.
Another key challenge that may be faced is knowing when to end the relationship (Mckeon, 2014). Usually, such deals might only be effective in several years, but as economy shifts, they may fail to deliver sustainable and larger benefits thus creating the need for ending the relationship. Therefore, it is very important for the company to have key indicators showing when to end the relationship and when to even improve its value as a key strategy for the business. Besides, it is very important for either company in the deal to understand that the change process is invertible and thus have a plan for it.
Decision theories
One theory that can be applied in decision making is descriptive theory method. The reason for choosing this approach is that it is realistic and uses past data to analyses and give a better decision (Panagiotou, 2008). The alliance will be based on market statistics and resources statistics. The resources available in the oil industry are limited and based on how the oil wells dry up, then through descriptive theory, the projection can be made thus knowing about how the future might look like. One of the key areas that both companies must have an interest in is about the oil prices (OPEC, 2016). Oil prices are usually volatile, and they keep on changing and therefore using the descriptive theory of decision making the company can use accurate and available data and apply models such as artificial intelligence or machine learning to come up with a good decision about their production capacity shifting based on the future oil prices changes. Artificial intelligence and machine learning are the leading technology in today world in predicting the future outcome based on traditional data. Having accurate projection based on fact is something that will enable both companies to be ahead of its competitors by producing only the required amount thus maximizing their profits. Besides they after among top oil company in the world. Therefore, they have a high chance of detecting the market process thus swaying the market to their favor.
There are also other several techniques that the company can use to make their decision. One of them is a heuristic technique. This is a technique that uses unjustified data or routine thinking to make a decision (Gigerenzer & Gaissmaier, 2011). Normally not all the time data is accurate in oil process and other related statistics. Therefore, heuristic thinking based on a major event that can lead to changes in the world oil prices is the key to making the decisions. Alternative decision-making approach can also be used. This is a technique that utilizes other means that do not use probability to make up with the decision. Probability-based model decision-making technique is suitable especially when the decision is to be made in uncertainty. A good example, in this case, is that the companies do not know exactly what the future prices and production level will be. Therefore, they can usually use probability to compute expected values and thus use them in making the decision based on production and market demand.
Aramco is by far a large company but, it needs to seek alliances with other company with good market command so that it can be effective and sustainable in future. One of the greatest fear of Aramco today is visions that countries have to reduce the use of fossil fuels by 2030. Among the countries that are seeking this goal include the UK. If such goals are implemented, there can be an effect on Aramco as their market share would reduce. Therefore, the alliance is important for ARAMCO, as it will be a great source of the idea for the company especially in those cases when they need to meet the sustainability goal based on Saudi vision 2030.
References
Gigerenzer, G., & Gaissmaier, W. (2011). Heuristic Decision Making. Annual Review Of Psychology, 62(1), 451-482. doi: 10.1146/annurev-psych-120709-145346
John, F. (2011). Understanding the Benefits and Challenges of Strategic Alliances | International Franchise Association. Retrieved from https://www.franchise.org/understanding-the-benefits-and-challenges-of-strategic-alliances
OPEC. (2016). OPEC : Oil Price Volatility: Challenges & Opportunities. Retrieved from https://www.opec.org/opec_web/en/3935.htm
Panagiotou, G. (2008). Conjoining prescriptive and descriptive approaches. Management Decision, 46(4), 553-564. doi: 10.1108/00251740810865058
Mckeon, M. (2014). 9 Challenges to Strategic Partnerships [INFOGRAPHIC]. Retrieved from https://www.powerlinx.com/blog/strategic-partnership-challenges/
