Middle East national oil companies (NOCs) should implement a more robust research and development framework, according to a recent study by management consultancy Strategy& (formerly Booz & Company), part of the PwC network.
Despite the global decline in oil prices and overall R&D spending, global oil and gas companies have bucked this trend, maintaining relatively higher investments in R&D with an overall R&D intensity — the ratio of R&D spending to revenues — growing by 0.55 per cent in 2015. However, NOCs in the Middle East have not kept up with their global industry peers when it comes to R&D intensity (R&D spend as a proportion of company revenue).
Anil Pandey[/caption]
“Even though NOCs in the Middle East recognize the need to build R&D capabilities to move from being technology adopters to becoming innovation leaders, they lag behind the global industry in terms of R&D investments. The difference in the investment level is significant when compared to industry peers, including NOCs outside the Middle East. For example international companies have an R&D intensity of 0.42 per cent, NOCs outside the Middle East are at 0.52 per cent, and Middle East NOCs are only at 0.10 per cent — 0.15 per cent,” said George Sarraf, partner at Strategy& and the leader of the energy, chemicals, and utilities practice in the Middle East.
The study suggests that building the necessary innovation capabilities requires addressing several region-specific challenges including 1) limited innovation ecosystems in the oil and gas industry, 2) insufficient government support for R&D, 3) weak links between academia and the industry and 4) the predominant culture of sourcing technologies from external suppliers rather than developing in-house solutions.
Commenting on the current situation, Anil Pandey, principal with Strategy& and a member of the energy, chemicals, and utilities practice in the Middle East said, “Most major Middle East National Oil companies in the region are starting to see the opportunities and returns R&D capabilities can generate in the long run. As a result we not only see a shift in the investments both at a national and international level in terms building national R&D centres, technology parks and international satellite centres in order to enhance their overall capability. ”
According to Strategy&, achieving a fully functional R&D setup requires a six-part framework: 1) NOCs need to define a clear R&D strategy by identifying when to develop in-house capabilities and when to adopt existing technologies in line with their long-term business strategies, 2) they also need to ensure continuous communication between all parties involved in the development and deployment of new technologies. In addition, NOCs should 3) focus on attracting and retaining the right talent by improving their value proposition and 4) implement an effective collaboration model with the right external partners. Throughout this process, NOCs also need to 5) pave the way for commercialization by considering issues such as intellectual property protection, patents and monetization priorities. Finally, the companies should 6) foster a culture of innovation consistent with their overall R&D strategy.
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