Sales Management

Sales strategies in times of an oil price of USD 99,76: some learnings from 2008, with applicability for technology SMEs with exposure to offshore oil and gas

OLYMPUS DIGITAL CAMERAToday, we learned that a barrel of Brent oil is down to USD 99,76, the lowest oil price in around 14 months.  We have also over the last few months been informed that SSB expects a reduction in investment on NCS of 10-15%, and that a 20% reduction is seen as not an unrealistic scenario (source: www.dn.no/nyheter/energi/2014/06/12/Norge/ikke-lenger-utenkelig-at-oljeinvesteringene-kan-falle-40-prosent).  At the same time, low oil price and poor returns have also created an industry-wide focus on cost-cutting measures, and Aibel has announced personnel reductions of around 250 employees due to loss of contracts to lower-cost competitors.

This situation will of course seriously impact tier 1 and tier 2 suppliers to NCS, as well as a large number of technology SMEs offering their technologies to these higher-tier suppliers.  The technology SMEs will be exposed through three mechanisms:

  • the direct effect: loss of order intake, simply due to the reduction in investments
  • the investor effect: loss of interest from the current and prospective investors of these SMEs, and therefore increased exposure to cash issues
  • the risk avoidance effect: in times of cost-cutting, concern about technology risk and therefore reduced interest in the novel technologies typically promoted by these technology SMEs

The situation has significant resemblance to the situation in financial tech sector in 2008-2009, in which we saw a complete meltdown of some major financial institutions as well as across the board termination or scaling down of certain trading activities for which such financial technologies were used.

I was at that point in time in a position with excellent insight into the vendor landscape in financial technology.  Here is what characterized the sales strategies of technology companies in that sector that came out of the financial crisis and its aftermath strengthened, not weakened:

  1. Focus on services and to a lesser extent products to existing customers.
  2. Willingness to offer lifetime extensions and functional extensions of current installations, rather than new installation and re-platforming initiatives.
  3. Repositioning of offerings / crafting of new value props to align with the cost-control and risk avoidance imperatives.
  4. Careful management of contract profitability, on a per contract basis and per customer basis, to avoid running out of cash.
  5. Use of the realities of such downturn to maintain and further develop position in key accounts, especially relative to weaker competitors.

I believe (1)-(5) could serve as useful reminders for most technology SMEs with significant exposure to offshore oil and gas.  And, though oil prices may also longer-term go down, I think there is still plenty of business opportunity for technology companies with novel offerings that fundamentally support the oil and gas industry’s agenda of deeper, more remote, and harsher (and subsea).

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