In the modern business environment, marketing is viewed as a way of doing business rather than a function of business and touches on every aspect of life. Due to the emergence of a hypercompetitive economic environment, marketing in contemporary business is often characterized by increased dynamism, which requires organizations to adjust their marketing strategies to meet the ever-changing consumer needs.
Scholars have put forward numerous definitions of marketing in an attempt to explain what marketing really entails. The Chartered Institute of marketing defines marketing as a management process that involves identification, anticipation, and satisfaction of consumer requirements in an effective and efficient way (Kermani 1).
Marketing involves establishment and maintenance of healthy relationships between a companys products and its customers through extensive promotion of companys brand name and products, which in turn increases sales.
On the other hand, public relations is defined by the chartered institute of public relations as the discipline that guards a companys reputation with the aim of earning understanding and support and influencing opinion and behaviour of potential consumers; it is a planned and sustained effort through which organizations seek to establish and maintain goodwill as well as mutual obligation between them and the general public (Kermani 1).
Public Relation is a controllable and cost-effective way through which a company can build the visibility and credibility of its product to the target market. Its efficiency has further increased due to improvement in technology and communication, which has allowed companies to easily penetrate and venture into potential markets.
Modern public relations encompass press relations, client relations, investor relations, and staff relations. Organizations PR aims at developing these relations in order to portray the appropriate image for the company and its products to the relevant stakeholders (Kermani 2).
Marketing and public relations tools are essential in enhancing success in any organization. Therefore, companies evaluate their marketing and public relations strategies on a constant basis in order to assess their effectiveness and ensure that they serve their intended purpose.
However, for these strategies to perform effectively, the companies have to ensure that they provide superior quality products to their consumers in order to build consumer confidence and loyalty and to achieve sustainable competitive advantage in their respective industries.
Public relations and marketing differ in the sense that marketing concentrates on efforts to establish a relationship between the customer and the organization by strongly emphasizing on consumer satisfaction and the companys objectives while public relations covers a broader range of relationships with stakeholders from within and outside the organization (Kermani 2).
Consequently, public relations contribute to the marketing effort by maintaining goodwill with all the relevant stakeholders. Good public relations within an organization translate to a good image for the company and its products hence PR plays a major role in strategic marketing.
The role of general public in overall business performance should not be underemphasized. In addition to being the ultimate consumers, the general public has become increasingly conscious of the role of companies in community and general welfare issues.
In response to this, organizations have put more emphasis on the improvement of public relations through corporate responsibility and social welfare maintenance. In small business organizations, public relations activities are handled by the marketing personnel, while large organizations often form an independent department which deals with a wide range of relationships between the company and other stakeholders.
Public relations managers engage in extensive analysis of the public and other related parties that directly or indirectly affect operations and performance of the organization. The PR managers then formulate strategies that provide a deliberate and sustained effort to promote an understanding between an organization and its external and internal relations.
This generates a positive interest towards the organization, which encourages enquiries into the organizations activities, re-establishes dormant contacts and reinforces the companys image with the existing customers. Public relations serves as a powerful promotional tool since some of its aspects are free in comparison to marketing forms such as advertising.
However, public relations require dedication and substantial amount of time and resources. These high costs often discourage organizations to implement public relations strategies, which results in loss of opportunities and damage to the companys image. Successful implementation of public relations in organizations has served to promote the image of a company in its internal and external environment.
Saudi Aramco, one of the largest oil and gas producing companies in the world has experienced rapid growth and impressive performance over the years and this can be partly attributed to the development of its public relations. Our study will, therefore, focus on the role of public relations in marketing Saudi Aramco brand name and promoting its performance.
Brief History of Public Relations
Some scholars view the Middle East as the origin of public relations with the disciplines history dating back to thousand years ago (Stokes & Freitag 168).
Cuneiform tablets found in Iraq have been dated back to 4000 years ago and appear to be some sort of news release providing advice to farmers (Stokes & Freitag 168). The leaders in the ancient Middle East, such as Pharaoh have also been known to have used various seasons and ceremonies to communicate certain information to the people.
The Arab culture was also characterized by events such as Okadh Souk where people met, discussed, debated, and delivered public speeches (Stokes & Freitag 168).In Islam, communication was encouraged, especially when it involved converting new followers and the Islam annual pilgrimage to Mecca further enhanced and nurtured public relations in the region.
In addition, public relations in the Middle East were evidenced by majlis, which were open forums where citizens were presented with an opportunity to air their grievances to the high officials and in some cases make public speeches.
In Saudi Arabia, the regions economy has significantly improved with the rapid increase in global demand for oil. However, public relations in the country have faced a lot of challenges over the years due to conflict arising between some of Saudi Arabian religious leaders and the advocates and implementers of progress and innovation in the region.
Nevertheless, PR has gained momentum in the recent past and numerous public relations and advertising firms have been established in the region (Stokes & Freitag 169). These firms borrow hugely from western media and utilize advanced technology in order to effectively and efficiently meet their objectives.
However, limited support from senior management and limited resources has derailed the development of public relations in Saudi Arabia. In addition, research has revealed that PR in the region emphasize more on specific crisis rather than exploring the public relations models suitable to the regions context.
Further, some of the top management in Saudi still conceptualize PR as propaganda rather than a valued contributor to effective business decision making (Stokes & Freitag 169).
Public Relations in Saudi Aramco
Emergence of contemporary public relations in Saudi Arabia has been evident in Saudi Arabian Oil Company (ARAMCO), which is one of the largest oil companies in the world. ARAMCO commenced its operations in the1930s under joint ownership by American and Saudi Arabian oil companies.
Since the American managers and workers failed to understand, accept and accommodate Saudi culture and values, serious communication and cultural issues emerged, which led to the urgent need to establish a public relations function within the organization in order to avoid incidences of culture clash (Stokes & Freitag 168).
The PR function was charged with the responsibility of training the Arabs on how to associate with the US Americans in the workplace and to teach the Americans on how to accommodate and adapt to the Saudi culture. Through this function, the company further sought to establish various research tools which aimed at promoting effective communication between the two cultures (Stokes & Freitag 168).
Introduction of a public relations function in Saudi Aramco in the early times led to improved relationships between the workers at ARAMCO and this greatly enhanced the performance of the company.
Currently, Saudi Aramco is owned by the Saudi Arabian government and it is a world-renowned petroleum enterprise that specializes in exploration, refining and distribution of oil and its related products in local and international markets. Saudi Aramco has experienced remarkable growth over 77 years of its existence making it one of the largest oil-producing companies in the world.
The company has highly boosted the economy of Saudi Arabia due to its significant contribution to overall GDP of the country. In addition, Saudi Arabia is among the largest oil-producing countries in the world.
According to Barker Hughes, in 2005, Saudi Arabia had the highest number of recorded oil rigs in the world (In absence of the former Soviet Union) with 350 oil rigs. The pie chart below is a clear representation of the numerical count of oil rigs working around the world in October/November 2005.
Saudi Aramco owns and manages oil reserves, which contain an approximate 260 billion barrels of crude oil and also owns one of the largest gas reserves in the world (Saudi Aramco par1). In addition, the company owns the second largest tanker fleet, which promotes efficient transportation of crude oil across the world through its affiliate Vela Marine International Ltd (Saudi Aramco par1).
Saudi Aramco has ventured in diverse markets by opening up its affiliates in countries such as China, Japan, UAE, Netherlands, and the UK, among other countries. In addition to meeting the domestic demand in Saudi Arabia, the company produces oil and gas to meet the increasing global demand.
As shown in the diagram below, the amount of oil produced in Saudi Arabia for the duration between 2000 and 2006 exceeded 7000 barrels per day, as estimated by the gas and oil journal and the joint data oil initiative.
Today, Saudi Aramco has established a vibrant public relations department that is charged with the responsibility of transmitting relevant and desirable information to its employees, customers, and the general public. The department formulates strategies which aim at promoting the companys image to the internal and external stakeholders who may influence the performance of the company both directly and indirectly.
The PR department further seeks to attract and retain employees who posses a wide variety of skills and expertise necessary for efficient operations in Saudi ARAMCO (Saudi Aramco par 2).
Through the maintenance of a skilled pool of labour, the company is able to deliver quality service to its customers across the world hence enhancing consumer confidence and loyalty.
In addition, the public relations department seeks to establish a two-way communication channel between Saudi Aramco and its audiences in order to emphasize on its operational excellence both locally and internationally (Saudi Aramco par 2).
Therefore, the companys public relations currently focus on the improvement of its human resource relations, customer relations, community relations and investor relations in order to promote the image and brand name of the company in the global market.
Developing Human Resource Relations at Saudi Aramco
Saudi Aramco heavily invests in its human resource component in a bid to promote public relations within the organization (Annual report 32). The company strives to develop its human resource sector by ensuring that the existing pool of labour possesses the required skills and competencies to deal with the challenges and complexities arising in the petroleum industry.
In order to remain at par with the companys impressive growth and performance, Saudi Aramco aims at expanding its pool of skilled human resource by extensive training of existing employees and recruiting more specialists and experts to work on its numerous innovative projects. The company emphasizes on its corporate values throughout its operations.
These values include the strive for excellence, human resource development through continuous training, promotion of fairness and integrity, teamwork, ensuring safety of environment, responsiveness to consumer needs, stewardship, trustworthiness, accountability and citizenship (Annual Report 32).
Upholding these values in companys activities depict an image of corporate responsibility and concern for community and employees welfare rather than the companys self-interests. Consequently, adherence to corporate values improves the companys image and promotes consistency within the organization.
Saudi Aramco invests heavily on extensive training and career development of its human resource component, which has earned it increased worldwide recognition (Annual report 32). The companys professional engineering development division is a clear indication of its global recognition for human resource development. The division received accreditation by ACCET, a US-based organization in 2008.
The company has also sought to develop its leadership, which is essential in improving the overall performance of human resource in the company. In response to this, Saudi Aramco has developed a series of leadership development programs that plays a major role in the improvement of leadership competencies among the companys human resource.
In 2008, more than 10000 employees benefited from the leadership development program, which was a significance increase from the previous years. Saudi Aramco promotes self-development among its employees through extensive training and e-learning, establishment of learning centres, learning initiatives and programs such as business events, degree recognition, and education refund plans (Annual Report 32).
A skilled and professional pool of labour enhances effective communication within the organization and portrays a positive image for the company hence improving its brand name.
The company further supports education in the Saudi community through sponsorship of selected students in local universities and other parts of the world (Annual Report 32).The rate of excellence among these students is further intensified by the college preparatory program which assists students in gaining admission to universities where they can undertake degree courses.
In addition, Saudi Aramco college degree program for non-employees Benefits the companys sponsored students undertaking university degree programs by providing them with the opportunity and resources to pursue different careers.
Saudi Aramco apprenticeship program offers eligible high school graduates with an opportunity to train in technical and clerical careers in order to meet the companys requirements and labour market demands. The company has also outsourced some of its training activities to the local institutions (Annual Report 33).
The company utilizes domestic education institutions to improve the capabilities of their employees through training.
The purpose of this initiative is to develop strategic training relationships between Saudi Aramco and the local educational institutions in order to enhance the companys image among potential employees and the local community at large. Graduates from these institutions are often hired by Saudi Aramco as apprentices through the vocational college graduates non-employee program (Annual Report 33).
Further, the company places some of its employees under internship programs while others are sent for specialized training and this promotes specialist development hence enhancing efficiency in business operations. Participation in community development through provision of employment and training improves internal relationships and promotes the companys image both locally and internationally.
Further, highly knowledgeable and skilled human resource component promotes internal and external relationships in Saudi Aramco.
Investor Relations at Saudi Aramco
Saudi Aramco was initially jointly owned by several oil companies in the United States and Saudi Arabia. It was known as the Arab American Oil Company. Therefore, its initial concerns primarily focused on oil production and development of US-Saudi relations under the leadership of United States ambassadors (Federal research Division 170).
However, in 1968, the minister of petroleum and mineral resources suggested the idea of Saudi Arabian participation in the activities of Saudi Aramco. In response to this, long negotiations were held, which led to Saudi government acquisition of 25% ownership in 1973 (Federal research Division 170).
The ownership fraction doubled in 1974 and by 1980, the government of Saudi Aramco had fully acquired all the four Aramco parent companies. The government then acquired full ownership of Saudi Aramco in 1988. Under government management, the company was put in charge of all domestic exploration and development in Saudi Arabia (Federal Research Division 171).
Currently, the companys management reports to Saudi government through the supreme council for petroleum and mineral affairs whose members are appointed from both government and private sectors in Saudi Arabia.
Saudi Aramco partners with international firms to in order to promote its performance and gain access foreign markets. In 2007, China, one of the fastest-growing economies in the world allowed Saudi Aramco to establish and control 600 gas stations at Fujian (Pigato & World Bank 100).
In addition, a state-owned Indian oil corporation partnered with Saudi Aramco in the construction of a secondary refinery plant in India (Pigato & World bank 100). Further, the company grants concession to foreign companies such as Sinopec to explore the countrys oil resources.
Exploiting such partnering opportunities in the global economy enhances international relations and formalizes relations between Saudi Aramco and other potential markets. Through partnering, public relations managers at Saudi Aramco can easily coordinate campaigns in foreign countries in order to promote their brand name.
Further, physical presence in foreign markets promotes the emergence of cultural and social relationships between Saudi Aramco and its consumers in foreign regions (Pigato & World Bank 111).
Since it is essential for the company to address consumer needs and respond to their grievances, partnering with foreign companies provides an opportunity for Saudi Aramco to establish direct contact and coordinate communication networks with foreign customers.
Developing Customer Relations
Despite the fact that Saudi Aramco is one of the largest oil-producing companies in the world, the company faces stiff competition from other companies in the hydrocarbon industry around the world.
Therefore, Saudi Aramco has to formulate strategies which are aimed at ensuring that it attracts and retains its customers through impressive customer care. Developing good customer relations improves public relations and enhances overall performance of a company.
Information technology is the driving force of all activities in Saudi Aramco. The companys information technology customer care centre provides support for all information technology and network communication for over 70000 employees, partners, and contractors in the region (Saudi Aramco par 1).
The customer care addresses IT issues in the company and handles over three thousand calls per day with an average resolution time of ten minutes. In addition, Saudi Aramco ensures that its industrial practices remain the most desirable in the petroleum industry. Its estimates of approximately 260 billion barrels of proved oil reserves do not rely on any pressure maintenance (Saudi Aramco par 3).
Consequently, Saudi Aramco has reduced chances for production collapse, which increases consumer confidence in their supplies. The companys impressive performance is often attributed to Saudi Aramco efficient production and delivery of products to its customers.
Developing Public Relations through Corporate Responsibility
Maintaining Safety and Promoting Health within the Organization and Community
Saudi Aramco advocates for the creation of a safe environment for its employees and the community at large. To achieve this, the company has developed an advanced safety program which aims at protecting workers and the community from the negative implications associated with its industrial activities. Development of a skilled pool of human resource in Saudi Aramco has facilitated the development of a safe culture within the company.
Participants in any of the companys training programs undergo a 54-hour safety course which covers safety issues relating to driving, fire, and personal safety (Annual Report 36).
All the students have to pass in the safety course in order to successfully graduate from their respective programs and acquire employment in Saudi Aramco. In addition to the extensive training, the apprentices have to attend a safety camp which covers a wide range of safety precautions and minimum safety standards.
The corporate loss prevention program at Saudi Aramco incorporates every aspect of the organizations safety and has achieved remarkable success in prevention of accidents, environmental degradation, and property loss in the communities in which the company operates. The company seeks to assure safety and health to the people despite the raging controversy on health issues in the petroleum industry.
In response to these shortcomings, Saudi Aramco provides its numerous employees and dependents with wellness programs, improved healthcare through their state of the art health care facilities, and satellite facilities among other safety and health-promoting measures (Annual Report 36).
In addition to offering training programs to the employees and other stakeholders, the company provides incentives to employees who demonstrate safety-conscious attitudes hence promoting healthy living and compliance to safety standards in the company. To further promote safety, the company conducts independent health inspections at all company community ands industrial communities.
Saudi Aramco encourages healthy lifestyles among its employees and the community at large. The company conducts health campaigns, presentations, and publications which emphasize on the importance of healthy living to individuals.
Aramco commitment to health is further emphasized by its participation in global health matters such as polio eradication campaigns, health campaigns, and organ donor awareness campaigns (Saudi Aramco par1).
In order to further promote the wellbeing of the workforce at Saudi Aramco, the company has established numerous industrial hygiene programs which aim at protecting the workforce against injury and promoting efficiency in production.
In addition, the company ensures that the safety standards within the facilities are met by conducting constant self-assessments in order to evaluate its performance and mitigate health and safety risks that are likely to occur.
Safety standards protect the workers from unsafe exposure to hazardous materials such as chemicals, radioactive materials, and biological agents, which may affect the long term health of workers within the organization and the external community.
The companys comprehensive hazardous materials communications program assists in risk assessment, hazard information and proper training on handling and disposal of hazardous materials hence considerably minimizes risks of environmental contamination (Saudi Aramco par 1).
In addition, the company has established programs covering areas such as ergonomics and personal protective equipment and seeks to ensure compliance with these standards by conducting random inspections and monitoring of its facilities.
Promoting Environmental Preservation
Arab countries especially in the Middle East face major environmental challenges most of which emanate from population growth and industrial activities which increases pressure on natural resources (Sale 136). The energy sector is often associated with substantial environmental degradation which results from toxic gas emissions and fossil fuels depletion.
Saudi Aramco demonstrates its commitment to environmental conservation through its environmental protection department (Sale 136). The environment protection department is charged with the responsibility of handling environmental issues and ensuring that all the companys facilities are complying with environmental standards as they go about their activities (Saudi Aramco par1).
To efficiently conduct its activities while still maintaining environmental standards, Saudi Aramco has developed a broad array of operational requirements and engineering standards which are aimed at directing the companys employees towards achievement of this objective. These programs include waste management programs, oil spill contingency plans, and hazardous materials handling processes.
For instance, towards the end of 2010, Aramco Overseas supported the efforts to drill an oil spill in Egypt (Saudi Aramco Par 2). This exercise allowed the company to implement and assess the effectiveness of the oil contingency plan in risk containment.
In order to prevent air pollution emanating from its industrial processes, Saudi Aramco operates a number of sophisticated air monitoring stations which ensure that all its facilities across the region operate within the national air quality standards (Saudi Aramco par 3).
The air monitoring stations record parameters such as toxic gas levels in the atmosphere, which provides the environmental protection department with the necessary information to formulate an action plan. In addition, Saudi Aramco closely monitors the toxic gas emissions from its facilities by stack monitoring and process control monitoring and responds to the results accordingly (Saudi Aramco par 5).
The company further utilizes the air dispersion modelling in order to determine the nature of facility control required to reduce emissions up to an appropriate level (Saudi Aramco par 5). To preserve the limited water resources, Saudi Aramco ensures that water, which is also vital for human survival is protected against pollution, which may result from the companys industrial activities.
The company ensures that the water being discharged from plants is purified thoroughly to free any biological or chemical contamination. The company has established treatment plants and water wells which are constantly inspected to ensure that they comply with the environmental standards outlined by environmental protection department as well as the government.
Saudi Aramco further monitors its industrial wastewaters and ensures that it is properly treated hence free from organic and non-organic pollutants, which may cause detrimental effects to the environment. They also engage in recycling of industrial wastewaters, which after extensive treatment is used in agricultural projects for irrigation (Saudi Aramco par1).
Saudi Aramco established an industrial waste management program which oversees proper handling of industrial waste in the companys facilities for environmental protection. This plan has received international recognition and the company has earned numerous environmental awards which act as a marketing tool for the company and its products.
The company makes use of various environmentally friendly methods of waste management as a means of disposing off its waste products (Saudi Aramco par 1). Solid waste materials from the plants are disposed off in landfills while other wastes are handled accordingly to minimize environmental damage.
Through these waste treatment plants, the company is able to recycle some of its industrial waste and treat the rest of the waste such that it does not pose any danger to the environment.
In addition, Saudi Aramco waste minimization program has significantly contributed to the reduction in amount of waste generation within the companys facilities. For instance, the company use of flue gas oxygen analyzers optimizes fuel consumption and to minimize emissions hence promoting environmental preservation.
Environmental preservation demonstrates high levels of corporate responsibility and is often used by companies as a means of gaining competitive advantage. By engaging in environmental preservation initiatives, the company promotes its image in the energy industry where environmental concerns are constantly raised.
This, coupled with environmental award recognition promotes the companys image to the external world hence increasing popularity and demand for their products in the global market.
Interaction with the Economy
In Saudi Arabia, Saudi Aramco is one of the major sources of revenue for the government. In addition, the company produces adequate oil to cater for domestic consumption as well as exports.
The company has significantly contributed to industrial growth in the region by providing power to drive plants and enhancing development of tertiary industries. Oil production in Saudi Arabia has promoted economic diversification in the regions economy and has assisted in job creation hence improving the standards of living of the countrys population.
Source: Bullet Journal How to track your energy. Web.
In support of the local economy, Saudi Aramco awards the majority of its contracts to Saudi Arabian contractors. For instance, in 2008, eight hundred contractors were registered with Saudi Aramco most of which were awarded to domestic contractors and Saudi owned subsidiaries (SA 08 Annual Report 39).
The company engages both foreign and domestic engineering firms in a bid to promote efficient execution of the companys innovative projects. The companys contribution to the economy of Saudi Arabia has promoted its image in the local context and has also earned increased recognition across the world as one of the most successful oil and gas companies of the time.
Further, Saudi Aramco significant contribution to the development of education in Saudi Arabia has led to the development of a healthy and beneficial relationship between the Petroleum Company and the regions academia (Annual Report 39). This has led to emergence of a diversely knowledgeable society which contributes to overall development of the regions economy.
Saudi Aramco has influenced the formation of industry and business associations in the Middle East region. Through the actions of the companys finance organization, Saudi Aramco made significant contribution to the founding of GCC board director institute, which focused on understanding and creating awareness on issues and challenges that face organizations boards in the region (SA 08 Annual Report).
Business associations promote national and regional cohesion and any company promoting such values gains favour from both local and international community. In addition, Saudi Aramco utilizes the nations oil resources efficiently and aims at producing oil and gas at the lowest possible cost (Saudi energy 1).
Saudi Arabia and possibly Iraq incur the lowest cost of oil and gas production amongst the major producers of oil in the world (Ramady 222). Consequently, reduced oil prices and the current slowdown in global demand for oil positively impacts on the Saudi Arabian economy in the short run.
Scarcity of financial resources discourages further exploration and boosts efforts for development of alternative sources of fuels, which not only assist the company to survive through the global crisis, but also creates an opportunity for development of environmental friendly sources of energy (Ramady 223).
As demand picks in the future, the company will be better positioned to meet the global demand hence promoting its dominance in the petroleum industry in the future. Saudi Aramco ability to withstand the adverse effects of the global financial crisis and fluctuating oil prices has renewed investor confidence, promoted customer confidence, and attracted more international customers.
Saudi Aramco aims at ensuring that its industrial and economic activities do not conflict with environmental and welfare standards. In 2005, Saudi Arabia was estimated to produce 10.9 million bbl/d of total oil which indicated a sharp increment from the production levels in previous years (Saudi Energy 1).
Source: Bullet Journal How to track your energy. Web.
Evident from the graph above, the company produces a variety of crude oils with 65-70% of the total production being considered light gravity (Saudi Energy par 1). The companys major long term goal rests on its ability to develop lighter crude oil reserves.
With the global demand for energy shifting to more environmentally friendly fuels, production of light fuels by Saudi Aramco will not only increase demand for its products but also enhance its image by demonstrating its efforts in environmental preservation.
The companys performance has continued to improve over the years hence continuously strengthening the economy of Saudi Arabia. In 2005, the company projected an increment in total oil production to 12 million bpd by 2009 and the companys senior vice president expressed Saudi Aramco intention to double the number of drilling rigs operating in 2004 in the subsequent years (Saudi Energy 1).
The company further planned to invest more than $ 130 billion during the period between 2008 and 2012 in order to expand the countrys production capacity to 15 bpd by the end of the period (Ramady 223).
The capacity will enable the company to meet any unprecedented increases in demand without experiencing any lags in supply, which will increase the preference for the companys products and services among international customers.
Challenges Facing Public Relations Efforts in Saudi Aramco
Saudi Aramco has experiences a lot of difficulties emanating from global financial crisis and fluctuation in oil prices. This reduces the amount of revenue available to finance public relations initiatives. One of the key energy-related challenges facing the company is volatile political environment in the Middle East.
The government of Saudi Arabia has had to increase its security spending due to the increasing number of terrorist attacks since 2003 (AnneKelly 93). The threat posed to Saudi oil facilities raises a lot of concern in the international context hence damaging the image of the company to major international customers such as the United States.
In addition, the monopolistic nature of Saudi Aramco also raises a lot of concerns regarding its independent operations.
In addition, the company portrayed an image of continuous increase the oil exploration in Saudi Arabia while global industrial analysts and major financial institutions claim that the oil production was approaching its peak as of 2005 (AnneKelly 93). This issue has raised a lot of controversy around the world and has resulted to reduced confidence in the companys operations.
Conclusion
The purpose of public relations is to establish, develop and maintain healthy relationships in organizations activities. Organizations seek to establish and maintain good public relations with all its stakeholders by creating an environment that creates room for development of healthy relationships and promoting public satisfaction through consumer satisfaction and corporate responsibility.
This is primarily due to the fact that the impact that a companys activities have on the public directly affects the companys overall performance. Developing good public relations requires a clear understanding of key public relationships and the impact of such relationships on consumer behaviour.
Saudi Aramco has sought to establish good public relations through development of its key relations with the customers, owners, employees, and the economy. This has promoted the companys image in the global market making it the most competitive petroleum company in the world.
Public relations act as a promotional tool and its effectiveness is further highlighted by its ability to serve as a marketing tool as well as a tool for building healthy relationships in organizations.
In Saudi Aramco, developing public relations has been achieved through extensive training of the human resource component, development of customer care programs, participation of the company in environmental and social welfare issues in the communities in which it operates, and developing partnership with foreign companies in order to gain access to foreign markets.
These initiatives have promoted the companys brand name both locally and internationally leading to the companys impressive performance.
Consequently, companies seeking to promote their brand name should consider improving their public relations and adopt such strategies in order to improve their image. Implementing strategies that aim at improving an organizations relations with its stakeholders evidently leads to improved business performance.
Works Cited
AnneKelly, Regina. Energy Supply and Renewable Resources. New York: InfoBase publishing, 2007. Print.
Federal Research Division. Saudi Arabia: A Country Study. London: Kessinger Publishing, 2004. Print.
Freitag Alan & Stokes Ashli. Global Public Relations: Spanning Borders, Spanning Cultures. New York: Taylor &Francis, 2009. Print.
Kermani, Faiz. Marketing and Public Relations. Buckinghamshire: Institute of Clinical Research, 2006. Print.
Pigato Miria & World Bank. Strengthening China And India Trade And Investment Ties To The Middle East And North Africa. New York: World Bank Publications, 2009. Print.
Ramady A. Mohamed. The Saudi Arabian economy: policies, achievement and challenges. New York: Springer, 2010. Print.
Sale, Timothy. Advances in International Accounting: Volume 20. Oxford UK: Elsevier Publishing.
The purpose of this paper was to discuss the possibility of listing Saudi Aramco’s shares on New York and London stock exchanges and to make a comparison for these leading centers in order to forecast the future of Saudi Aramco’s initial public offering. With specific reference to corporate governance issues, the paper highlights the readiness of Saudi Aramco for listing on global stock exchanges. The design of the study was qualitative guided by the Framework Method. It was chosen for a comparative analysis and determining relationships between variables to draw descriptive and explanatory accounts centered on major themes or topics. Findings showed that the Saudi Capital Market Authority should review its corporate governance practices to attract foreign investors to the Tadawul. New York and London stock exchanges seem to be ready for the initial public offering, but they will have to review some of their practices to accommodate Saudi Aramco. To list on international stock exchanges, Saudi Aramco will be required to address such issues as the board’s composition, the focus on shareholders’ rights, directors’ responsibilities, the board’s committee, the disclosure issues, transparency, and conflicts of interest. The study also revealed other factors that could possibly influence outcomes of the initial public offering.
Introduction
One standout among the most elaborate and expansive financial related spectacles in the late 20th century and the early part of this century is the tremendous development in global financial exchanges and capital flows among different financial markets in advanced and emerging nations. This occurrence in the global financial system is an aftereffect of the progression of capital markets in advanced and emerging economies and the expanding assortment and intricacy of finance related transactions. It can also be seen as a consequence of the growing dependence of the developed and developing countries, as emerging nations turn out to be more included in global flows of commerce and payments. More flexibility in the movement of capital flows enhances the distribution of capital across the globe, enabling assets and investments to move to regions and countries with higher rates of return. Conflictingly, any attempts to confine capital flows prompt damages to capital structures that are for the most part exorbitant to the economies applying such controls. In this manner, the acceleration in global capital flows and financial exchange is in progress and, to a certain degree, an unalterable process.
This is evident through the growing number of firms whose securities are exchanged on global stock exchanges, which have quickly defied the geographical borders between local and global capital markets. Globalization of securities markets has quickened with the simplification of foreign exchange requirements, floating rates of exchange, domestic interest rate variations, and the expedition of a few different requirements, which beforehand restricted capacities of firms to conduct cross-border businesses. Improvements in technologies have enabled real-time global transactions. Stock exchanges have steadily expanded their understanding of the importance of foreign company listings and are escalating their search for possible new organizations.
The increasing globalization of capital markets provides more opportunities for firms to acquire new capital.1 It likewise gives a different way for private firms to get public recognition, to bring down the cost of capital, to enhance foreign relations, and to improve the market value of their shares. Over the most recent two decades, an ever-increasing number of organizations have found these opportunities, and the rate of new listings has expanded steadily. In the meantime, the growing incorporation of worldwide capital markets and multinational business dealings generally prompt diminished returns from the global expansion or cross-listing.2 As many listings are noted, some data suggest that most organizations have noted that their primary purposes behind cross-listing overseas have not been completely met, and an increasing number of firms are opting to discontinue their global cross-listings.3 Thus, to list on foreign stock exchanges is plainly a complex issue. Nonetheless, from these developments in the international financial market, companies seeking global exposure can decide to list their shares on foreign stock markets, and this is the case of Saudi Aramco.
Saudi Aramco is the biggest state energy firm that plans an initial public offering (IPO) late in the year of 2018. Observers claim that this is most likely to be the largest ever IPO, exceeding the $25 billion of Alibaba recorded in 2014.4 The Saudi energy giant firm plans to list its share on deep, active markets in foreign stock exchanges, as well listing on the country’s domestic stock exchange, the Tadawul. This implies that the company may be considering cross-listing of shares; that is when Saudi Aramco lists its equity shares on one or more foreign stock exchanges alongside the domestic exchange.
Saudi Aramco has been assessing various global stock exchange markets for hosting its shares. The New York and London Stock Exchanges are seen as the most viable options for global listing, according to insider information. However, Saudi Aramco has been evaluating other markets, including Tokyo and Hong Kong. Additionally, the company is also reported to be assessing other smaller but robust markets in Europe, Canada, and Singapore. Notably, the largest four stock exchange markets provide access to large reserves of investor cash, but they also present diverse sets of rules and conditions for the company to review, as it gets ready to leave the state firm status to become a public one.
Problem Statement
Some critical past developments have been observed in the Saudi Stock Exchange. In February 2006, the market showed relatively high progress rates that culminated to 20.634, which represented an annum rate increment of 230%. However, after that, market conditions were not as good as they were before and there was a market crash in 2006.5 Toward the end of 2006, the Saudi stock market major index, the Tadawul All Share Index (TASI), lost more than 64%. As a result, the market capitalization dropped to more than $325 billion.6 Many Saudi investors were losing their investments and the Saudi government intervened by restructuring and disciplining the market.
Problems of the Saudi stock market stemmed from several factors, including a lack of initial public offering, a widespread absence of corporate transparency, the surge of small time and first time investors, illiteracy on the main principles of investment and others. Thus, the market correction represented a greater shock and caused many investors to protest. With the planned Saudi Aramco IPO, it is imperative to study and understand whether the company can thrive in such a stock exchange environment. The Tadawul is generally closed for foreign investors, and its robustness and efficiency could be hard to ascertain, perhaps due to the lack of sufficient data. In addition, the existing anomalies, limited disclosure, and transparency could negatively impact decision-making among investors who lack the thorough knowledge of the stock market. Thus, a comparative study of three stock exchanges (the NYSE, the LSE, and the Tadawul) is extremely important for would-be investors.
Methodology
In this research, a qualitative study design was adopted based on the Framework Method approach. The Framework Method is found in the expansive group of investigation strategies frequently referred to as a qualitative content analysis or a thematic analysis.78 These methodologies recognize shared characteristics and contrasts in qualitative data before concentrating on relationships between various parts of the collected data, in this manner, looking to draw descriptive and explanatory accounts centered on major themes or topics. The Framework Method gives clear processes to follow in analyses and delivers profoundly organized results of the shortened data. It, therefore, is valuable where a vast volume of data is involved and an all-encompassing and a distinct review of the whole data is necessary.910
The major defining feature of the Framework Method is the matrix result: rows that contain cases, columns or sections with codes, and ‘cells’ of abridged data, giving a structure into which the analyst can methodically condense the data with a specific end goal to examine them through case and code. Frequently, a ‘case’ is a single interviewee, but this can be adjusted to different units of examination, for example, predefined cases. Although in-depth investigations of key topics can happen over the entire informational index, perspectives of each study participant bear the relationship with different parts of their views inside the matrix, so the context of the person’s perspectives is not lost during the analysis. Notably, comparing and contrasting information is crucial to the qualitative investigation and the ability to contrast data contained across cases and within each case is incorporated into the structure and procedure of the Framework Method.11
The analysis process involved data coding, which was a conceptual or descriptive label assigned to raw data excerpts. Data were also categorized. This involved the grouping of codes into different clusters based on the same and interrelated concepts and thoughts. Categories were drawn from the raw data, and it led to the process of data abstraction – a move toward the general concepts instead of specific ones. This process was followed by charting, which involved capturing categorized and summarized data into the matrix (a spreadsheet with many cells where all data were captured through codes and cases) of the Framework Method. Data were also indexed in which codes were assigned based on the analytical framework to the data set in the matrix. An analytical memo was also developed to present all specific concepts and themes that emerged in the data during the process of analysis. This process has led to the development of specific themes or concepts for comparison. These interpretive concepts explained certain aspects of the data and reflected the final results of the analysis of the data set. Themes were expressed and established through probing data categories by comparison across and within various cases.
Notwithstanding, care is required before choosing the strategy as it is not an appropriate method for analyzing a wide range of qualitative data or for responding to all qualitative research questions, nor is it a ‘simple’ form of qualitative research for quantitative specialists. Essentially, the Framework Method cannot be applied to extremely heterogeneous data. That is, data for analysis should cover comparative themes or key issues with the goal that it is practical to categorize them.12 Although the Framework Method is most ordinarily utilized for the thematic analysis of semi-structured interview data, in this research, it was adapted for textual data gathered from different publications, including journals, books, and reports.
Based on the Framework Method, past research was descriptively analyzed. Materials for the study included journal articles, books, newspaper articles, and other literature of interest in the area of global share listing, cross-listing, and other global stock exchange activities. These materials were found through thorough searches in different databases, online journal articles, and reviews of past reference materials in the same field. Further, a qualitative analysis was also used for the stock exchange analysis for comparative practices of the New York Stock Exchange, the London Stock Exchange, and the Tadawul. The analysis involved the extraction of information on stock exchanges from operational literature with listing data and related facts. Additional materials, such as journals and reputational publications, were also analyzed. Further, a qualitative analysis was applied to determine requirements for listing on the London Stock Exchange and the New York Stock Exchange, as well as on the Tadawul. The research involving cross-listing on these stock exchanges was based on data gathered from various publications, including reports, listing requirements, and general requirements for best practices in the market. Finally, all these elements of cross-listing were compared to each other for decision-making and for providing appropriate recommendations.
Literature Review
Stock Exchange
A stock exchange or a bourse (stock market) is a market in which brokers and traders buy and sell shares of stock, bonds, and other securities, as well as offer facilities for issue and recovery, particularly stocks listed by firms, derivatives, unit trusts, and bonds. Dividend and payment incomes also take place at stock exchanges. A stock exchange is a trading market for buyers and sellers to trade stocks and other financial instruments. The IPO is usually conducted in the primary market, and later trading takes place in the secondary market, which makes a stock exchange an extremely important element of a stock market. On the other hand, the capital market is where businesses can raise either short-term or long-term finance. It provides a wide range of financial instruments with risks, yields, and prices. Stock markets bring together speculators to invest in different financial instruments, which spur economic growth. Scholars have always strived to demonstrate the relationship between stock market and capital market and their roles in economic growth.13
The Stock Market and Economic Growth
On a fundamental level, securities exchanges are helpful instruments for economic growth of a country. Efficient stock markets attract private investments and assign them for corporate speculation and subsequent growth. This offers companies access to less expensive capital than commercial banks and assists them to manage financial-related risks. Stock markets additionally enhance organizational efficiency through the possibility of a takeover. For instance, if the management team fails to boost investor value, at that point, another agent could take control of the firm, restructure it, and present better workforce and robust practices for value creation to owners. Thus, the Tadawul, like any other stock market globally, is extremely important for the Kingdom’s economy and its investors.14
Scholarly research demonstrates that different measures of capital market movements are positively associated with significant economic development and productivity in various nations and that the association is especially strong in developing markets. Specifically, this positive correlation between the stock market and economic development is noted in countries with liquid and highly active stock markets, but the causality relationship is not observed across countries where the market is small and less liquid.15 Another study showed that emerging economies could realize increased economic growth by expanding the size of their stock markets and market capitalization.1617 Various indicators of the capital market, such as the total value of stocks traded, market capitalization, stock turnover ratio, and volumes of stock markets, were evaluated in relation to economic growth, and the researchers concluded that market capitalization was the most important indicator of economic growth in a country.18
Some drawbacks are however noted. For instance, exceptionally liquid stock exchanges may adversely impact corporate governance. When share prices are increasing, investors may be enticed to take a casual perspective of management activities, knowing that they can sell their shares whenever and for a bigger profit, as was the case in Saudi Arabia before the stock crash of 2006. Markets likewise tend to support huge corporations over smaller ones, usually with little attention to their efficiency. In this way, big inefficient companies will probably assume control and additionally buy small efficient firms with no change in their own management culture.
This implies that stock markets need robust supporting agencies, such as well-established regulatory authorities with effective governance structures, to make them successful. However, it is imperative to note that many emerging economies, such as Saudi Arabia, lack such robust oversight agencies. Moreover, countries with limited foreign investment in their stock market may fail to adhere to the best practices in the industry.
The Saudi Stock Market Overview
The Saudi bourse is the leader among the Gulf Cooperation Council (GCC) countries – Oman, Bahrain, Kuwait, Qatar, and the United Arab Emirates (Dubai and Abu Dhabi). As at January 2017, the Tadawul had a market capitalization of US$ 442.30 billion.19 With a population of about 26 million people and the GDP of US$718.5 billion, the Tadawul is the most robust, active market in the GCC, outdoing the Kuwait one. Market capitalization to the GDP ratio is 61.58%.20 The Tadawul is generally advanced, and presented the world’s first completely electronic market in the 1990s, including exchanging, clearing, settlement, and depository services.21 The TASI, the main index, achieved its apex on February 25, 2006, when it closed at 20,635.
In 2008, the Saudi bourse came second just to London based on the new share issuance. However, Saudi IPOs declined quickly following the escalation of the worldwide financial crisis in October of the same year. Previously, the Saudi Stock Market was under the authority of the Saudi Arabia Monetary Agency (SAMA), but this was changed in 2003 when the role was assigned to the Capital Market Authority (CMA) in July 2003.22 The CMA is currently the only body mandated to regulate and supervise the Saudi Arabia’s capital markets and issues, as well as important regulations and guidelines to protect investors and guarantee impartiality and efficiency in the bourse.
Notable changes have taken place in the Tadawul after the crash. Foreign participation has been embraced in the bourse albeit, gradually. For a long time, the Tadawul was available to only Saudi people until December 2007 when foreign participation was allowed to implement the decision adopted to set up a GCC common market. Consequently, the Tadawul was opened to other investors from the GCC. However, their involvement has remained low because other GCC nationals appear to prefer their local markets. Prior to 2008, non-Arab foreigners who did not live in Saudi Arabia could only engage in limited mutual funds for trading. Nonetheless, in August 2008, the Kingdom introduced new guidelines that permitted such foreigners to take part in stock market trading using swap provisions with natives endorsed and authorized by the CMA as intermediaries.23
The Saudi bourse market’s structure is simple. The two main leading sectors are financials and petrochemicals, representing nearly 70% of the Tadawul market capitalization. The Saudi Stock Market has various listed firms categorized into any of the nine sectors. These sectors include Financials, Basic Materials (Petrochemicals), Industrials, Telecoms, Consumer Goods, Consumer Services, Oil and Gas, Utilities, and Healthcare. The leading firms by market share are Al Rajhi Bank and the petrochemicals manufacturer, Sabic, both of which control more than 10% the market. It is imperative to note that some smaller sectors, such as the Consumer Goods, have relatively a higher number of listed firms despite the fact that they make a minor contribution to the market value.24
Retail investors command the Saudi Stock Market. Thus, retail investors, who dominate the market, usually trade heavily on small cap companies. In fact, in November 2009, they were responsible for 88% of shares traded, with little or no significant change from previous years.25 This implies that Saudi institutional investors play a limited role in the bourse relative to other developed economies, such as London, where institutional speculators take the leading role in the market.
Although the role of Saudi retail speculators cannot be ignored in economic growth, they have also significantly contributed to the bourse volatility. Consequently, the TASI experienced an extremely high run-up in the mid of the last decade. This mirrored various variables, but the major among them was a tremendous entry of small first-time dealers pulled in by different underpriced IPOs, which specifically lured speculators to offer portions of their available stock to raise cash to invest in the new issues, accordingly fuelling volatility in the market.262728 Between the period of 2003 and February 2006 (the peak), the TASI recorded a stunning 700 percent, with the market capitalization exceeding $800 billion, over two times the nominal GDP. At its zenith, the Saudi bourse was the world’s tenth biggest securities exchange market by value, notwithstanding the fact that it only had 78 listed stocks, numerous with a constrained free float.29
The peak, an enormous run-up in stock price, was followed by a severe downturn, leading to serious losses to Saudi speculators. Obviously, valuations turned out to be progressively elevated with the mean price-to-earnings ratio (applied by investors and analysts to assist ascertain if a given stock/stock market index is reasonably priced) stretching to a high of 47 toward the end of February 2006 – in fact, some firms even recorded a ratio beyond 100.3031 Notably, the expected company profit increment started to show up prior to real profits. This was exacerbated by yearly reporting demonstrating that many organizations had invested substantially in the bourse and booked non-existing Tadawul earnings. The market correction finally came, but it was serious, with the TASI losing a large portion of its value in under three months, finishing the year more than 53% below where it started. It is imperative to note that the Saudi bourse shock spread to other GCC markets, including Dubai, Abu Dhabi, and Qatar, which occasionally recorded extreme, abrupt falls.32
The crash led to massive losses, which affected millions of Saudi investors. With such outcomes and awareness about the misery and attempts to avoid any repeated cases in the future, the CMA adopted a new governance approach. This was a three-pronged governance method designed to enhance better practices. First, it increased the size, in particular, the depth of the market. Second, it embarked on enhancing market transparency and disclosure. Finally, the CMA focused on rooting out insider trading. These measures aimed at reducing Saudi market anomalies commonly exploited by investors.33
In the recent past, it has been noted that the Saudi authorities are keen on enhancing foreign involvement in the bourse. Today, the Kingdom administration understands that one way of improving the market depth lies in institutional involvement, specifically foreign investors.34 The country has for quite some time looked ways of enhancing the stability of the Tadawul. For example, some new regulations introduced recently now allow foreign investors to take part in initial public offerings within the Kingdom and would give them access to a stockmarket targeted at small and medium-sized companies.35 Additionally, through a parallel market arrangement, non-resident foreign investors would be allowed to invest directly starting January 2018. It has been observed that foreign institutions have capabilities to decrease volatility in the market by purchasing when stocks are undervalued and retreating when valuations start to stretch.3637 Their attention on market studies additionally has a tendency to inhibit potential bubbles from emerging. By advancing a thorough assessment of the market, they enhance corporate governance.
It is however observed that abrupt inflows or outflows of foreign money can disrupt markets, as noted during the 1998 Asian market crisis. Still, all factors considered, foreign investors, especially pension and mutual funds, are viewed as external forces with positive impacts on local stock exchanges. Further improvements on attempts to open the Saudi economy for foreign investments have been noted. For instance, from 2005, the Saudi government has granted licenses to various foreign investment banking that have additionally been permitted to offer brokerage services. Therefore, the volume and quality of market research have improved extraordinarily, and numerous speculators are presently well informed about investment decision-making than previously observed. Constant market assessment of specific firms and shares is currently accessible, giving valuations in light of universally adopted models, for example, the peer-based valuation, the Dividend Discount, the Discounted Equity Cash Flow, and other relevant tools, and in addition to buy, hold, or sell suggestions.38 Improved quality research is usually applied to support various processes of market activities, including execution, which are now considered important on the Saudi bourse.
Additionally, the Saudi government introduced swap arrangements to promote foreign involvement in its market. Such improvements provided an opportunity for the CMA to allow for the first in 2008 non-resident, non-Arab foreign investors to purchase Saudi shares unexpectedly. Preceding this development, such categories of investors could only participate in the Saudi market through mutual funds. Notably, foreign asset managers still cannot directly participate in the market, but the swap arrangement with licensed, approved brokers give them an opportunity to buy and sell shares. One should however note that swap arrangements expose foreign investors to risks due to a lack of ownership rights, counterparty risks, and perhaps discouraging investors from creating significant stake in the firms.39 Overall, Saudi authorities hope that the involvement of foreign investors would enhance transparency as they strive to prevent insider trading and introducing a cap on personal credit to stabilize the market.
Recent Developments on the Saudi Stock Market
Prior to the crash, the TASI experienced unprecedented run-up well above international equity standards as investors disregarded basics and bet that prices would continue to rise. The consequent market crash saw the index run below the world benchmarks for more than a year. However, since the beginning of 2008, the TASI has fundamentally attempted to follow the direction of the world stock markets, and there have been a number of reforms, including the above-mentioned ones.
Fast forward, various significant advancements have occurred in Saudi Arabia over the most recent couple of years, demonstrating the administration’s sense of duty regarding actualizing major structural economic reforms. For instance, in April 2006, the government launched the Saudi Vision 2030.40 Critical changes, with regard to this research, have targeted the Saudi bourse. While a part of these changes concentrates on expanding ownership rights of qualified foreign institutional speculators, they likewise provide a roadmap for the presentation of new sorts of trading options, such as securities lending and secured short selling. Moreover, the Saudi agencies have introduced a new settlement procedure from the previous T+0 to T+2 settlement.
It is observed that these new developments are not driven by any issues related to the moderate uptake of shares by foreign investors for now, but are pegged on more extensive macro-economic changes illustrated in the Saudi Vision 2030.41 Additionally, all the guidelines presented by the CMA provide a roadmap for the future consideration of Saudi Arabia into the Emerging Market Index (MSCI EM) yet some potential impediments, which are all manageable, could slow down the inclusion process. The authority is also keen on implementing changes and on ensuring that operations are conducted within the set regulations to avoid trade delays.
The Saudi Vision 2030 sets an objective that, by the year 2030, the country’s economy, right now the nineteenth biggest on the globe, will be among the world’s best 15. Integral to that will be more focused development in the non-oil sectors in Saudi Arabia by, for instance, empowering many small and growing businesses and, more fundamentally, extending the role of the private sector that currently represents under two-fifths of the Saudi GDP.42 In view of that, the country’s administration intends to privatize some of its state-owned corporations, including selling its stake in Saudi Aramco to foreign speculators. This, in turn, implies a greater role for the Riyadh Stock Exchange, which is now the biggest stock market in the GCC but is set for a major development as more formerly state-owned corporations enter the stock market.43
Consequently, the Tadawul has experienced enormous changes during the most recent year or so in preparation. For example, as previously noted, the CMA has changed its requirements concerning the settlement cycle. The settlement cycle here refers to the procedure in which a buyer or a seller of shares provides either cash or securities to an individual or a firm to the other party. Changing the settlement period is meant to align its practices with the other major international exchange markets. The Saudi Stock Market has additionally transformed its standards to enable speculators to loan stock and to take part in ‘short-selling’, a well-developed practice in other markets, in which a speculator sells shares they do not officially own in the expectation of purchasing them back later inexpensively. More importantly, of all, in the year 2015, Saudi Arabia started permitting non-natives to purchase and sell shares on the Tadawul on a restricted basis.
Additionally, at that point, in May of the previous year, it went further, increasing to 10% the maximum of the fraction of a firm’s shares that an individual foreign speculator may own. It further dropped a requirement that demanded foreign investors to own only 20% of Saudi Securities Exchange. However, it is imperative to recognize the fact that a rule that caps at 49% the volume of an individual organization’s shares that can be owned by foreign investors is still in place.44 All these new developments imply that Saudi Arabia could attract more of foreign capital into the Saudi Securities Exchange even before any state-owned firms, such as Saudi Aramco and others are completely or to some extent privatized.
It is currently observed that foreign investors control about 4% of the firms listed on the Saudi Stock Market, the dominant part of which are developing markets funds based in London.45 At the same time, one must note that these new developments present enormous challenges and opportunities for the Saudi’s financial watchdogs, as Saudi Aramco is expected to increase the market capitalization aggregate. Overall, all these efforts are seen as Saudi Arabia’s attempts to bolster foreign investors in advance of the Saudi Aramco IPO – the expected world’s biggest flotation.
Cross-listing
Saudi government agencies have stated that the company would be listed on both the Tadawul and on one or more global markets. This practice is called cross-listing. Now, Saudi Arabia has New York, London, Hong Kong, and other robust global stock markets among its many options, and the main emerging issue is whether cross-listing is the best option for the impending world’s biggest IPO.
Various reasons have been presented to explain why organizations choose to cross-list their shares in international stock exchanges.46 One major advantage of cross-listing is the financial gain. Cross-listing is a primary source of financing, and one of the principle purposes behind a firm’s decision to cross-list and raise funds cheaply compared to debt financing. This emerges in light of the fact that cross-listed stocks would be more accessible to foreign speculators. Gaining access to global stocks may somehow be confined because of global investment barriers, which prevent foreign firms from getting to specific markets. Firms that cross-list also benefit from increased liquidity.47 As a company trades across various time zones and in multiple currencies, it enhances liquidity and capabilities to raise capital across different global markets. This expands the issuing organization’s liquidity and gives it greater capacity to raise capital, which are significant factors in share valuation and market liquidity.
Cross-listing increases shares marketability across the globe. For instance, many stock markets, such as London, the US, and Hong Kong, expect Saudi Aramco to list on their markets. This action would extend investors, as foreign investors would gain access to shares from other regions. This makes the organization’s securities to be recognized in foreign markets, allowing a firm to get additional capital, if needed, through selling shares in other global markets. There is a bonding hypothesis that, if their company is successfully cross-listed, managers have to comply with a range of regulatory requirements. The reason is that managers need to address the corporate governance standards related to their home country and to the foreign market.484950 Increased corporate governance would eventually benefit shareholders.
The traditional way of thinking has long held that organizations cross-listing their shares on robust markets in the developed economies gain access to numerous investors, increased liquidity, favorable prices of shares, and a reduced capital cost. The period between the 1980s and 1990s saw many firms from around the globe appropriately cross-list their shares. However, a recent study demonstrated that firms from advanced economies get no advantages from second listings in foreign securities markets.51 Hence, companies that still have foreign listed shares ought to rethink. It is argued that this cross-listing never again seems to generate any value, maybe in light of the fact that stock markets have turned out to be more liquid and harmonized and speculators more global in their strategies, or perhaps on the grounds that the advantages of cross-listing were exaggerated from the begin.
The above observation however may not necessarily be said of firms from emerging economies cross-listing on other developed countries. At present, according to Dobbs and Goedhart, there are benefits and drawbacks of cross-listing for corporations in emerging markets in which merits and demerits differ significantly from nation to nation than they do in the advanced economies.52 Specifically, the research so far has revealed no direct evidence to suggest value creation for investors of firms cross-listed in developed countries. It further showed that cross-listing had neither significant effects on valuations nor any steady positive effects on share prices responses following cross-listing announcements.
Regardless, some interesting findings specific to firms from developing world were noted. For instance, cross-listed shares account for as much as 33% of their aggregate trading volume. Moreover, some of these firms have performed well with regards to issuing a lot of new shares through cross-listings in the UK or the US stock markets—an occurrence that may have been unimaginable at home. Finally, shareholders are most likely to benefit from strict corporate governance and bourse conditions required in the UK or the US relative to ones applied at home. However, one study concluded that the US policies were not consistently value optimizing for all different groups of foreign private issuers (FPI). Specifically, the existing single-modal policies of undiscerning incremental deregulation cannot address issuers’ concerns effectively in the context of developed countries.53
Further, on market reactions to cross-listings, studies present different results. Past literature has demonstrated that cross-listing on the US stock markets is linked to considerably positive stock market reactions. Comparatively, one study revealed that foreign firms that cross-listed on the US stock exchange recorded an average of 1.3% returns, 1.1% on the London Stock Exchange, and 0.5% on Tokyo Stock Exchange.54 It was additionally demonstrated that such cross-listed firms on the US exchanges had improved disclosure (an important aspect of corporate governance for firms in emerging economies) and bonding creating value, while the London Stock Market allowed firms to overcome segmentation and bonding following the higher announcement returns. However, the continental Europe and Tokyo exchanges presented mixed outcomes. This implies that the destination market for cross-listing matters for value creation.
When the Chinese Internet company, Alibaba launched its IPO in New York, it demonstrated that the USA was the global hub for new stocks.55 Analysts have attributed the choice of the US markets for many of the IPOs to the raging bull. Markets in Asia, for instance, have been slow for years. Additionally, the US markets are preferred for IPOs because firms are allowed to have a dual-class voting structure. This voting structure permits the owners to trade shares in a firm, but still retain their voting control. Such flexibility appears to be a major factor influencing the decision of some firms, such as Alibaba, to go public in the US, rather than in Asian markets, such as Hong Kong and Tokyo.
Voting control and other rights offer investor protection, which is now being enhanced across several countries. As investor protection progresses in the home country, companies turn out to be less likely to cross-list on foreign stock markets with poor investor protection. On the contrary, they are most likely to cross-list on foreign markets with robust investor protection, particularly in the London Stock Exchange and the US markets. Further, some firms assume that foreign markets give them high valuations, particularly when it is difficult to assess their valuation at home.56
Cross-listing however presents some costs to companies. These costs are generally related to disclosure. Those firms that cross-list and sell their shares in foreign markets are subjected to enhanced commitment full disclosure and sustained investor relations efforts. In the US markets, for instance, foreign companies must assess their choice and realize that the process could be tedious and timely as required by investors and regulators. Hence, costs are likely to rise for companies, which have been used to presenting far less information to the public.
Additionally, cross-listing presents some implications related to corporate governance practices. Through cross-listing its stock on the stock market of a different country, an organization can adequately select the level of regulation and control it gives to its investors based on the requirements of that country.57 In such a manner, the cross-listed firm will submit itself to the compulsory corporate governance practices required at the advanced securities exchanges. For instance, deciding to cross-list its shares on the US stock exchange, the company needs to revise and improve its corporate governance practices in order to match specific market practices of the selected country.58 First, the firm is expected to adhere to corporate governance laws and regulations applied, for instance, in the US, the UK, or Hong Kong, which imposes more strict disclosure conditions. Second, the company would also be assessed with various financial bodies, including auditors, analysts, underwriters, and debt rating agencies among others. These are components of enhanced disclosure conditions.
Finally, the company must subject itself to a thorough analysis of securities, implying that potential incomes would be determined more precisely. Overall, firms should consider all factors that are related to their decision to cross-list shares on any securities exchanges in advanced economies. This would account for stringent disclosure conditions, complying with acquisition rules, adopting well-developed corporate governance terms, and accepting costs that will be incurred to execute these requirements, as well as understanding the separation between shareholders and management. Therefore, companies should carefully weigh their options before deciding to cross-list on foreign securities exchange, and they must be ready for improved reporting, auditing, and risk management, which are common best practices in developed economies.5960
Aims and Objectives
This research is designed to achieve the following two main aims:
To discuss the possibility of listing Saudi Aramco’s shares on New York and London stock exchanges.
To make a comparison with reference to these leading centers (New York and London) in order to forecast the future of listing Saudi Aramco’s shares.
In order to accomplish the aims set for this research, it is necessary to realize the following objectives:
To examine the corporate governance related to the Saudi Stock Exchange and analyze the mechanism of its work with the focus on its advantages and disadvantages.
To discuss specifics of the New York Stock Exchange.
To discuss specifics of the London Stock Exchange.
To examine the factors of attractiveness of the capital market of New York and London to list Saudi Aramco’s shares in order to attract foreign institutional investors.
Structure of the Paper
This paper consists of five chapters. Chapter 1 has presented the background for the research, literature review, and methodology. Chapter 2 sets the stage for exploring the structure of the existing Saudi Stock Exchange and the relevant company law along with any form of corporate governance. Chapter 3 is focused on the importance and structure of both the New York and London Stock Exchanges, their listing requirements, and both legal and corporate governance issues are discussed. Chapter 4 brings together the changes (if any) to the Saudi company law and corporate governance that might be required in order to obtain a listing on any of the discussed foreign stock exchanges. Additionally, a comparison of benefits and detriments of each market is presented. Finally, Chapter 5 covers recommendations on what needs to be done and why regarding Aramco’s IPO. It presents the prospective benefits that a foreign listing will provide for Saudi companies, as well as other observations.
Saudi Stock Exchange: Structure, Law, and Governance
This chapter sets the stage for exploring the structure of the existing Saudi Stock Exchange and the relevant company law along with any form of corporate governance. It covers the history of the Saudi Stock Exchange; the Islamic law (or Sharia) on the Saudi Arabian capital market; the Saudi Stock Exchange Law and the Regulations and Regulatory. It further presents the difference between numbers of companies on the Saudi Stock Exchange over the last ten years. Finally, the chapter dwells on Saudi Aramco, its relevance to the Saudi economy and the IPO.
Commonly referred to as the Tadawul, the Saudi Stock Exchange is the Kingdom’s only stock exchange and the robust market in the GCC region. The Tadawul is under the authority of the Saudi’s Capital Market Authority. Its best performance was noted on 25 February 2006 when it recorded All-Share Index of 20,634.86. Today, the CMA has embarked on major reforms to attract foreign investors and prepare the ground for Saudi Aramco IPO scheduled for late 2018.61
History of the Saudi Stock Exchange
The Tadawul: the Boom and the Crash
Set up in 1985 under the administration of the Saudi Arabian Monetary Agency (SAMA), the Saudi Stock Exchange, the Tadawul was replacing the causal agent-based model that had been created since the start of the twentieth century. The Saudi administration’s choice to set up a stock exchange came in light of quick developments in the number of Saudi Arabian business entities, which had multiplied in the 1970s, as the country’s economy started to mature. The TASI, which was given a base value of 1,000 when it was established, was created to record the performance of all listed organizations noted on the exchange.
At the start of 2000, the TASI started a consistent growth, and by the year-end of 2003, the index closed at 4,437.6, up from 2,518.1 noted in a similar period the previous year.62 It ascended in value by 84% in 2004 and 103.7 percent in 2005, ending the fiscal year at 16,712.64.63 The Tadawul’s market capitalization displayed comparable development, taking off from $68 billion in the year 2000 to $646 billion by year-end 2005.64 It is imperative to note that this stock market boom was not restricted to the Kingdom only. Other markets in the GCC countries – Oman, Bahrain, Kuwait, Qatar, and the United Arab Emirates (Dubai and Abu Dhabi), noted a growth of nearly ten-fold between the years 2000 and 2005.65 During this bullish period, the Kingdom remained the leader, however, accounting for generally 50% of the market capitalization and 80 percent of the shares traded in the year 2005. In the vicinity of 2001 and the first half of 2006, the GCC stock markets recorded 59 IPOs, which raised a sum total of $15.5 billion, and the Kingdom accounted for 11 (18.6%) of the aggregate. In addition, the Kingdom’s firms commanded the cash raised, with $7 billion or 45% of the aggregate.
A few elements seemed, by all accounts, to be at play. Liquidity in the entire GCC region had increased. A part of this was attributed to investors’ worries after the 9/11 assaults in the United States, as well-off Arabs sent back home their investments from western markets and looked to invest and contribute locally. What is more, oil prices had multiplied in the period between 2000 and 2005, favored by a worldwide demand and, in this manner, incomes from oil exports.66 Therefore, Saudi Arabia’s administration increased its spending on infrastructure, discharged its debt obligation, and put resources in its energy generation systems.
Following the decision to retire the debts, the Ministry of Finance was expanding the banks’ liquidity and subsequently leading to increased lending by the Saudi banks. They found a large pool of willing borrowers, particularly Saudis who wanted to put resources in the money markets. Initial public offerings (IPOs) on the Saudi market have a tendency to offer the stock at average prices with buyers only restricted to Saudi investors. For the most part, the share price was altogether below the real cost of the offers, and share assignments were settled over the number of buyers who had requested. On the first day, prices would demonstrate a huge increment, with a few investors cashing in their earnings and others trying to expand their positions. After the first leap, share prices would settle down, and critics noted that this underpricing normally prompted a triple gain on the IPO issue prices.
In the Saudi market at this period, there were a couple of alternatives for investment other than share trading. It was observed that starting small companies, which could have utilized the accessible money, was a costly and tedious endeavor. In 2005, the year prior to the stock market crash, Saudi Arabia was positioned 38th out of 155 nations in the World Bank’s Ease of Doing Business report.67 Its great positioning generally mirrored the effect of low duty rates and largely, adaptable work and employment conditions. More importantly, money markets had turned out to be progressively appealing to Saudis. The Saudi Telecommunications Company (STC) IPO of 30% in late 2002 had allowed a huge number of the populace to invest their resources in the stock market. Private Saudi investors received an opportunity to buy 60 million shares out of more than 90 million shares. Public pension funds received access to the rest of shares.68
Before the listing of STC, the Kingdom had about 40,000 dynamic portfolios. Following the IPO, the number multiplied and increased steadily thereafter, as more accounts were added. In fact, the 2005 IPO of Yansab (the Saudi Arabian petrochemical company) introduced nearly half of the country’s population (then total population was about 17 million) to investment in shares. It was also noted that STC’s 39% initial return was overshadowed by the excellent performances of other organizations, such as Sahara Petrochemical (rose 200% following its June 2004 listing) and Etihad Etisalat (recorded an increment of 500% following its December 2004 floatation).69 Additionally, the skyrocketing oil prices supported the performance of petrochemical firms, further providing certainty to speculators.
However, not everything was well. With time, retail investors, who represented over 95% of every day share trading volume on the Saudi stock market, were purchasing on margin. Data collected by SAMA showed that rates of personal obligation climbed considerably between 2002 and 2006. Specifically, advances for “Other Purposes – loans not identified with the real estate investments or durable goods, grew nearly five times, from $7.8 billion of every 2002 to $36 billion by 2005. It was also reported that some individuals from the working class with almost no investment experiences were supposedly selling their autos and liquidating their life savings funds to invest in the Saudi bullish market.
The unexpected inundation of retail investors represented a few difficulties. They were largely new to securities exchange business. Until early 2000s, the main investment options in the Kingdom were generally gold and real estate. Furthermore, the Saudi market had a couple of big institutional investors, and essentially no global corporation to give continuing points of view and to reduce market instability. The current development in access to the Internet and the appearance of Web-based trading additionally convoluted the circumstance for Saudi investors and regulators. Driven by market rumors and trade hyping, it was a near inconceivability for the emerging regulatory system of the Kingdom to manage market and investors’ expectations. Fundamentally, the Saudi stock market was ready for a boom and a crash. No short selling was permitted, investors bought together and now were selling together due to the lack of sophistication. Corporate reporting and filing rules were not generally implemented nor effected. Additionally, there was limited research on equity, and even if they were present, retail investors had limited knowledge and training in deciphering financial information, and the Web acted as a ready source of unverifiable data.70
One factor driving this market enthusiasm was its productivity or efficiency. It was observed that the Saudi CMA had embraced a quick settlement cycle of T+0, rather than the T+3 or T+2 settlement cycle for securities transactions, as is the standard in many advanced markets.7172 The T+0 settlement cycle (the immediate settlement) failed to enhance the level of asset safety for investors by not allocating sufficient time to verify trade fundamentals. Hence, the prompt settlement policy, independent of its impact on the nature of price factors, was more likely to lead to a large volume of noise trading on the Tadawul. Further, funds were available for investment, awash with the oil revenue with no other tangible investment options but the stock market, and the result was described as a case of a classic bubble.73
Any endeavors to moderate trading or increase retail speculators’ awareness of the market risks they were assuming was treated with doubts. Moreover, excepting investors from high-risk firms, insisting on accreditation for investment, or even advising potential speculators to complete a short questionnaire with respect to their knowledge of the risks of putting resources in the market were viewed as irritating obstacles to profiting from the boom. Moreover, some stocks were effortlessly manipulated due to limited disclosure.7475 The so-called paper companies (firms that had been established and gone public in the 1980s and had since deteriorated with merger floats and unconcerned administration) were seen as ready targets for deceitful investors to control for “pumping and dumping” the stock.76 Well-off investors could purchase and offload shares of small organizations among themselves to create the figment of interest, just to sell such shares once the prices increased.
In the meantime, the Saudi administration approved another sector, insurance, but announced that all insurance firms that got a permit had to be locally registered and publicly traded before doing business.77 In this way, countless insurance firms showed up on the market ready with risky products and inadequate floats. Such risks could have been controlled or avoided with sufficient regulatory requirements in place. For whatever length of time that the share trading market kept on rising, in any case, these issues were generally disregarded.
Toward the end of 2005, the Saudi securities exchange closed over 16,000. Since 2002, share prices were rising steadily, and rational Saudi investors would have been unreasonable to avoid the allure of the stock market. In addition, some government agencies and analysts encouraged speculators to invest and profit from the price rally. It, therefore, was difficult to restrain any Saudi investors focused on profiting from the boom. It is imperative to note that the most recent developments on the Tadawul have also been discussed in the previous chapter.
The Islamic Law (or Sharia) on the Saudi Arabian Capital Market
One major standard driving the Saudi Vision 2030 is ‘Living by Islamic Values’.78 These values bear repercussions for the financial sector, the fundamental components of which must stay sharia compliant. For capital market advancement, Islamic finance has both limitations and opportunities. One significant practice in Islamic finance is the proscription of riba or usury and gharar or excessive uncertainty.79 Riba significantly affects fixed income products. For instance, deposits must either earn no interests or show some aspects of profit-and-loss sharing. Additionally, bonds ordinarily should be supported by a different asset pool and have quasi-equity characteristics referred to as sukuks.
Short selling is strictly banned under the gharar principle. The model of life insurance is likewise seen as deviant, and is subsequently developed in a type of a shared social help scheme known as takaful. For pensions, sharia laws do not essentially influence them. However, a sharia-compliant financed benefits plan must be invested in assets that are sharia compliant. It is also observed that sharia-compliant counterparts are available for a large number of these banned products, and a study by the IMF noted little distinction between the realistic operational aspects of Islamic and non-Islamic financial systems.80
The Saudi Stock Exchange Law and the Key Regulations and Regulatory Agencies
The events of the recent past have demonstrated the increased commitment of the Kingdom to corporate governance and observance to the global best practices and codes. These improvements are widely acknowledged given the role of the Saudi economy in the Middle East region. The notable source of the Kingdom’s law is the Sharia or the Islamic law. Laws and regulations, normally issued by various government agencies, present clear, well-elaborate elements of these laws and specific requirements.
The CMA, established in 2003 under the CMA Law, is the current regulatory regime of the Saudi Stock Market.81 This agency is the only regulatory and supervisory body of the Kingdom’s capital market. It boasts of a broad range of administrative, legislative, and enforcement authorities and powers within the Kingdom. The CMA is the only agency mandated to approve the offering of securities, listing, invalidation, or deferments of listed stocks. It also grants licenses.
In 2006, the Saudi Capital Market Authority reviewed its corporate governance practices and issued the new Corporate Governance Regulations (CGR) to improve market conditions and investor protection. The Saudi Arabia Monetary Authority (SAMA) has also revised specific corporate governance provisions for banks conducting businesses within the Kingdom. Additionally, the Tadawul is the only agency allowed to conduct trading in securities in Saudi Arabia. Equities can be traded both on the primary market and on the parallel market with the previous settlement cycle arrangement of T+0, but the new arrangement is T+2 to embrace some of the best practices in the global markets. The Saudi bourse is a trading platform for sukuks, bonds, mutual funds, and real estate investment traded funds. Another important body is the Saudi Organization for Certified Public Accountants (SOCPA), which is significantly involved in shaping of the Kingdom’s corporate governance practices.
The Saudi corporate governance practices or standards were revised and the new version was unveiled on 22 April 2017. Other provisions are expected to be effected on 31 December 2017. The Corporate Governance Regulations account for the board’s composition, shareholders’ rights, directors’ roles, transparency, conflicts of interest, disclosure, and other issues. Saudi companies are characterized by a high concentration of ownership, particularly by the government or wealthy families, and corporate governance is expected to account for such ownership structures. The CMA requires Saudi listed firms to present quarterly and half-year financial statements, including the balance sheet, the statement of income, the notes, the statements of cash flow, and the independent audit report.82
Key IPO Regulations
Capital Market Law
Listing Rules
Parallel Market Listing Rules
Offer of Securities Regulations
Corporate Governance Regulations
Market Conduct Regulations
Rules for Qualified Foreign Financial Institutions Investments in Listed Securities
Instructions of Book-Building Process and Allocation Method in Initial Public Offerings
The Numbers of Companies on the Saudi Stock Exchange over the Last Ten Years
Major developments on the Tadawul can be traced back to 2004 when the local telecoms operator, Etihad Etisalat listed on the Main Market of the Saudi bourse under the current regulatory regime. In the year 2007, 26 companies offered their IPOs on the Saudi bourse. The insurance sector was responsible for 17 companies. The service sector produced six firms while three firms came from the industrial sector. The value of offered shares aggregated to SR 18,035.65 million, and the total IPO shares were 1,414.03 million. In this period, only 23 firms were listed and traded on the Saudi bourse, increasing the total number of listed firms to 111 alongside their market capitalization of SR 209.22 billion (10.75% of the total market capitalization).8384 The market remained vibrant and bullish throughout the year.
The year 2016 showed difficulties in the Kingdom. Relatively low IPO activities were observed. These were mainly attributed to low global oil prices and enhanced economic and fiscal measures introduced by the Saudi administration to manage its budget deficit. Additionally, short-term liquidity issue persists, and its impact on equity market is noticeable.
In 2017, however, some developments have taken place. For instance, on 26 February 2017, seven IPOs were listed on the Saudi Parallel Market, reflecting an increased intake by small and mid-sized Saudi firms. Under the QFI (qualified foreign investors) regime, the Saudi government has further allowed foreigners to invest directly in the Saudi listed securities, showing an important development from the previous Swap Agreements used until June 2015. Today, foreign investors have increased access to legal rights, and by March 2017, foreign investments in the Saudi bourse accounted for 4.07% of the total Saudi market capitalization.85 As of August 20, 2017, the Saudi Stock Market had listed 171 publicly traded firms.
Saudi Aramco
With Saudi Arabia considering a floatation of the world’s biggest initial public offering (IPO) in history, here is the key information that one should know about the company. Saudi Arabian Oil Company or Saudi Aramco is possibly worth well about $2 trillion. At that estimation, the company would be worth more than the aggregate of Apple, ExxonMobil, and Facebook.86 The company is headquartered at Dhahran, Saudi Arabia and presently 100% owned by the government but managed by a board of directors that includes both Saudis and foreign nationals.87 In 2017, it recorded the revenue of US$510 billion. The company boasts of more than 20 subsidiaries, including Saudi Electricity Company. Today, it is the world’s biggest oil and gas firm based on the revenue.
Saudi Aramco was initially established in 1933 under the guidance of Chevron. It underwent a partial nationalization in 1950, and the headquarters was relocated to Dhahran. After three decades later, the government took full ownership of the company where it has maintained utmost secrecy about the company’s estimated $260 billion barrels worth of oil reserves, which can be easily extracted. Formally, the company is responsible for operations of other numerous oil fields, including large and small ones across the country. Additionally, Saudi Aramco manages many gas fields, refining, marketing, and distribution of products globally. It boasts of about 60,000, including 10,000 expatriates, and a technology research center based in Aberdeen.88
The Saudi government plans to issue shares accounting for about five percent of Saudi Aramco. It is estimated that the company has larger reserves, ten times than the ones for ExxonMobil, making it the leading global oil producer. Saudi Aramco market value is estimated to reach about $2 trillion.89 As such, this IPO is expected to outdo the $25 billion of Alibaba raised in 2014.
Saudi Aramco as a Joint-Stock Company
As a state-owned company, Saudi Aramco currently realizes certain steps in order to become a joint-stock firm. This move is necessary in order to focus on the IPO and comply with regulations that are typical of other oil companies listed on global stock markets. The planned IPO made the company’s authorities change its status. In the context of these changes, the company will have the board including eleven members in contrast to nine persons who represent the board today. Among them, six persons will be appointed by the Saudi government.90 New regulations to control the relationships between the company and the government will also be applied in the context of a complex policy that is conducted by the Saudi Prince in order to reform the country’s economy and successfully enter global stock markets.
It is important to note that, being a joint-stock company, Saudi Aramco receives a range of possibilities to be listed on the Tadawul, New York, and London stock exchanges, and moreover, private sales also become open for the company.91 In this context, the decision to change the status of the company is based on the Saudi government’s strategic orientation to the development of the country’s economy with reference to attracting more investors and capitals. Therefore, the government will preserve its position related to controlling the production levels of oil and its sale with the help of modifying the structure of Aramco. At the current stage, the change of the company’s status and the focus on the IPO seems to address tendencies in the global financial market in order to contribute to the further progress of Saudi Aramco and other Saudi companies.
Conclusion
The principle issues for policymakers are to accurately put the Islamic financial related products on pertinent risk rating scales, for instance the Basel, and to identify an ideal regulatory way to deal with those establishments that are involved in both Islamic and non-Islamic financial products. The Islamic finance can likewise make significant contributions to the global economy. Its current assets are estimated to worth about US$2 trillion, which has increased five times in the most recent decade. With the most recent reforms and the impending floatation of Saudi Aramco, Saudi Arabia can keep on being a key market for Islamic finance and turn into a source of regulatory best practices for the region.92
Stock Exchange Structures and Future Trends
This chapter focuses on the importance and structure of both the New York and London Stock Exchanges, specifically their listing requirements (both legal and corporate governance issues). It looks at practices across the two markets based on risks and benefits. The future of Saudi Aramco and its share are also covered here. Markets in the most advanced economies are characterized by robust, significant regulatory agencies, highly developed capital markets with high rates of liquidity, huge market capitalization, and high-levels of per capita income. These markets are in western parts of Europe, North America, and Australasia. Canada, the UK, the US, Australia, Japan, and New Zealand are examples of developed markets. In this research, the stock markets of the US and the UK are relevant. It is imperative to note that the development of stockmarkets is a significant factor for explaining why nations develop or deteriorate.939495
The Comparison between the New York and London Stock Exchanges
Once the decision is made to go public, the next critical stage for the organization is where to list. Established in 1792, the New York Stock Exchange (NYSE) is the most seasoned and biggest stock exchange globally, with more than 33% of the world’s equities traded on the market.96 Throughout its history, the US stock exchanges are seen as broadest, most active, and fairest.97 The NYSE has adopted technology for electronic transactions, but the human intervention approach is still used on the argument that nothing can substitute human judgment and accountability, which lower volatility, offer deeper liquidity, and improve prices.98 It operates as a strong and transparent financial market with five specific regulatory agencies. These agencies are the NYSE, Arca Options, MKT, Arca Equities, and Amex Options that are used to oversee the stock exchange operations across several trading platforms.99
NASDAQ is known for many technology firms trading on its platforms. It boasts of Apple, Starbucks, and Microsoft among others. It previously merged with the Swedish and Finnish OMX to grow business.
Table 1: The Largest Stock Exchanges in the World. (Data compiled from World Federation of Exchanges) 100101
Market Cap. (Billion $)
Age (Year)
Listings (Public Firms)
Trade volume (USD Billion)
New York Stock Exchange
19223
224
2,400
11.299
NASDAQ
6831
45
3,058
8.739
London Stock Exchange
6187
215
3,041
2.540
The London Stock Exchange (LSE) is the third largest stock exchange on the planet based on market capitalization.102 Like other major stock exchanges, the LSE also merged with Borsa Italiana. Most of the companies listed on this stock exchange are based in the UK. Barclays, BP, and GlaxoSmithKline are major firms trading on this market. The Main Market provides access to a large pool of capital in Europe, while the Alternative Investment Market (AIM) now drives successful growth of small firms in the UK and across the globe. The Special Fund Market offers attractive and rather flexible environments for different types of investors. Additionally, the LSE has broadened its market structure with the focus on creating the Professional Securities Market (PSM).103 For investors, the New York Stock Exchange is the most attractive due to its large size (three times larger than NASDAQ) and because it hosts some of the most important leading blue chip stocks. Exxon Mobil, Walmart, Coca-Cola and others are the 2,400 firms listed on this stock exchange, bringing its market capitalization to a staggering $20 trillion.104
Factors of the Attractiveness of the Capital Markets of New York and London
The LSE has adopted technology to support trading and market data collection. Moreover, it is going global like its New York and NASDAQ counterparts, targeting emerging economies in Asia, such as China and Russia. Competition is fierce. As such, the LSE claims that the UK regulatory system offers major advantages in terms of high standards of corporate governance and less expensive compared with the potentially costly requirements of the US Sarbanes-Oxley Act. Further, the AIM is thriving due to a low entry threshold, flexible corporate governance regime, low listing costs (fees and regulatory compliance costs), and enhanced marketing campaigns. It also focuses on specific sectors, such as mining.105
The New York Stock Exchange is the global leader, the most liquid equities marketplace, and the gold standard based on the listing standards and large blue chip firms it has listed. It also a technology leader and now diversifying, through NYSE Arca, to accommodate other small firms due to competition, attracting firms not previously able to list on the market because of listing standards and costs.106 More importantly, the above literature review showed that cross-listing on the US stock exchange was associated with the positive market reaction shown through an average of 1.3% returns against 1.1% on the London Stock Exchange.
Companies should possibly consider listing standards, regulatory regime, and fees when choosing a stock exchange. Additionally, other variables, such as the valuation, the possibility of getting research coverage, the quality an exchange’s institutional investors, comprehension of the business, customer visibility, and peer comparison with other trading firms on a stock exchange are equally important. For instance, a poor choice of an exchange often reduces the valuation. Therefore, a firm should assess its primary business drivers alongside its strategic goals when choosing an exchange.
The Advantages and Disadvantages of the Decision to List Saudi Aramco’s Shares on the New York and London Stock Markets
Listing on developed stock exchanges is associated with positive market reactions and better returns. Nonetheless, selecting the most appropriate stock market might not be a direct decision, and it usually depends on multiple factors, such as strategic growth objectives, a regulatory regime, listing speed and efficiency, costs, and investor types.107 One major challenge for Saudi Aramco is transparency. No one really knows the worth of the firm, but it is estimated to be about $2 trillion. Additionally, the company is excessively secretive. It never opened its financial statements to the public, and the oil reserves’ details remain top state secrets, which the Saudi government may not be willing to release soon.108 Enhanced transparency would increase the valuation by lowering unknown risks. Further, it could remain a major issue before OPEC with the greater focus on global oil prices and geopolitics.109110 Observers note that the Kingdom should leave OPEC or stay out of the financial market to avoid market distortion by cartels and, thus, the US and the UK should reject the IPO.111 Still, in this context, it is important to assess advantages and disadvantages of listing Saudi Aramco’s shares on New York and London stock exchanges.
The New York Stock Exchange
Unique advantages of listing Saudi Aramco’s shares on the New York Stock Exchange are associated with the fact that it is the largest stock market in the world that is viewed as attractive and suitable by the majority of international energy or oil companies, including such giants as Chevron, Exxon Mobil, and ConocoPhillips. In addition, this stock market does not limit a minimum amount of shares to offer. As a result, the US initial public offerings can potentially be traded at more than 1500% above the offering price.112 Furthermore, Prince Mohammed succeeded in developing positive relationships with Donald Trump, and Saudi Aramco is viewed as one of the largest crude suppliers in the United States.113 From this perspective, it is possible to note that the stock market of this country is discussed by the Saudi authorities as an attractive option.
However, listing on the New York Stock Exchange can also have some disadvantages for Saudi Aramco. There are certain listing fees that equal about $0.0019 per share for more than 300 million shares. Furthermore, there are also fees related to the initial listing for ordinary shares, and the one-time special fee is about $50,000.114 Moreover, there is the necessity of complying with specific Sarbanes-Oxley’s requirements regulating the procedure of the company’s financial disclosure, which is not viewed as appropriate by many companies in this sector.115 Additional regulatory issues are associated with the fact that the US law provides victims of terrorism with opportunities to sue foreign governments if they are associated with terrorist attacks, as it is in the case of Saudi Arabia.
Risks of litigation against Saudi Aramco on New York’s stock market are rather high, and the used mechanisms to protect interests of shareholders in the United States also create barriers for Aramco to list on this stock exchange. In this context, shareholders’ rights are highly protected in the US market, but this regulatory environment does not create opportunities for Saudi Aramco to easily use the profits of listing on the New York Stock Exchange. One more disadvantage is that, in comparison to the Asian markets, the offering on this stock exchange can take more time, up to 24 months in comparison to the period of making the offering for Hong Kong’s market, for instance.116 Therefore, it is important to state that the company needs to evaluate these advantages and disadvantages of listing on the New York Stock Exchange in order to make a reasonable and well-supported decision and select the market.
The London Stock Exchange
The advantages of referring to the London Stock Exchange are in possibilities to enter the largest stock market in Europe that is represented by more than 700 foreign listed companies out of more than 2200 companies listed on this stock exchange. Royal Dutch Shell and BP are also presented as the major players in this market with the total weight of about 15 percent.117 The London Stock Exchange is also attractive for emerging players in the market, such as Rosneft and Gazprom, which issued international depository certificates in association with this market.
It is also important to note that the recent changes in rules provided governments with more opportunities to list specific state-backed entities like Aramco. As a result, the company can potentially join the list of the premium segment companies on the London Stock Exchange while receiving greater access to more investors. Furthermore, Aramco can join the premium segment even when listing less than 25% of shares, as it is required in other markets.118 The company plans to list only 5% of their shares, and this change in rules is attractive to them. Other benefits include the possibility to operate in an appropriate time zone and refer to suitable inclusion fees that are about $580,200.119
Still, there are also some disadvantages associated with listing shares on the London Stock Exchange. The specific proposal for Aramco to be listed on the market only with 5% of shares is not supported by some of the businesses in the United Kingdom because of potential effects on the stock exchange’s reputation in relation to the realized corporate governance policies.120 Therefore, the London Stock Exchange still requires the offering of 25% of Aramco’s shares, and the debates regarding the special proposal for the Saudis continue to develop.
One more significant problem that can prevent Aramco from entering the UK market is the country’s exit from the European Union because Brexit potentially leads to positive and negative outcomes for the country’s financial market. Thus, Brexit can result in possibilities for the financial market to fluctuate while affecting the cross-border trade. Moreover, Brexit can lead to decreasing the number of persons who will be interested in purchasing Aramco’s shares because of the status of the London Stock Exchange. From this perspective, the advantages and disadvantages of listing shares on the London Stock Exchange should be taken into account by the authorities of the company in spite of the evident attractiveness of this particular variant for Saudi Aramco.
The Future of the Saudi Stock Market and Aramco’s Shares
One needs to understand what Saudi Arabia wants to do with the cash raised through this IPO in order to comprehend the future of this company, its shares, and post-IPO issues, such as partial privatization (significant government oversight and control of 95%) in the Kingdom. Saudi Aramco IPO is extremely important for the Kingdom because it is a part of the larger national transformation agenda of the country driven by the Vision 2030, which focuses on the diversification of the economy and the reduction of economic reliance on oil and gas. To this end, proceeds would be used to fund public investments under a large Public Investment Fund (PIF).121
More importantly, all other industries, including financial and oil, support the IPO. However, the future of the shares remains unclear due to transparency, valuation, and strategy issues that still surround the entire IPO. Further, the path of future oil prices is another factor that could influence share prices of the company. At the same time, political risks may affect the value of this state-owned giant. Shares of Russian Rosneft and Brazil’s Petrobras are examples of big state-owned companies that have suffered low share prices due to political and corruption issues.122123124125 Some studies show a significant decline in performance post-IPOs based on return on assets and return on sales among Saudi listed firms.126127
Conclusion
Stock markets show that business operations and capital flows are now globalized. Although Saudi Aramco intends to list on the Saudi bourse, the major hurdle it faces now is selecting the most appropriate developed stock markets for its IPO. It, therefore, have to evaluate the pros and cons of every market, as every stock market touts itself as the most qualified for this IPO. More importantly, Saudi Aramco will have to face its transparency issue to list on any of the most advanced stock exchanges.
Regulatory Considerations for Foreign Stock Exchange Listings
This chapter brings together the changes (if any) to Saudi Company Law and Corporate Governance that might be required in order to obtain a listing on either of the foreign stock exchanges. A comparison of the benefits and detriments of each exchange and other issues is provided. Thus, this chapter is about various regulatory regimes and other emerging issues.
The state-owned oil giant is set to launch what is touted as possibly the largest IPO in history, and stock exchanges globally are interested and competing to list its shares. Among the interested markets are New York, London, Hong Kong, Tokyo, and Toronto stock exchanges, and these markets are attracted because of the size of the IPO.128129 However, the most important question now is where the company shares will be floated. It is already known that Saudi Aramco will engage in cross-listing with some of the shares offered on the Tadawul. The Riyadh Stock Exchange is now undergoing major transformation and modernization to prepare for the IPO and the intended privatization of some state-owned firms, reviewing the settlement cycle rules, changing rules on short selling, and allowing foreigners to buy and sell shares directly.
Corporate Governance Implications of Foreign Stock Exchange Listing
The New York Stock Exchange
The US President Donald Trump characteristically tweeted and publicly made it clear that Saudi Arabia should consider the floatation on the New York Stock Exchange, intervening to at least try to influence the decision of the Kingdom.130 History may favor the New York Stock Exchange.131 Prior to the state acquisition of the company, it was controlled by a group of the US oil giants. Saudi Aramco runs on ExxonMobil governance structures, and majorities of the company executives are educated in the US. The commercial argument is that the US presents a deeper market based on trading volumes, investors, and analyst communities that may help the firm. Under a foreign private issuer, Saudi Aramco may be spared some tedious reporting conditions applicable for US firms (selective disclosure of some information to investors and analysts).
The US accepts international accounting or home country accounting practices with minor adjustments to meet the US standards. The Sarbanes-Oxley Act 2002 will require robust internal control measures. The US also needs a majority of independent board members. Independent reviewers would be required for strict determination of certain and uncertain oil reserves. Politics could influence the outcome. The NYSE may be a difficult exchange. The Justice Against Sponsors of Terrorism Act (JASTA) 2016 allows a US citizen to sue the Saudi government on the grounds that it assisted to plan the 11 September, 2001, attacks on the US (the JASTA problem).132 This implies Saudi’s assets may be at risk in the US. Additionally, Saudi Aramco may not be ready for the US Securities and Exchange Commission audit requirements and a high-level of transparency.133
The London Stock Exchange
The LSE is seen as a natural choice because of the ties between the UK and the Kingdom. The Kingdom mainly purchases its wares from the UK, and deep diplomatic ties exist between the two countries. The Financial Conduct Authority is currently consulting and reviewing its practices to allow another type of foreign listing under international category based on less stringent rules perhaps driven by the Brexit and the need to open up the exchange and meet the needs of Saudi Aramco. For premium listing, the LSE needs an independent board and investor protection displayed through ownership rights, voting rights, and pre-emption rights (for the UK shareholders to get future stock during issues or sales of shares).
Saudi Aramco intends to float only 5% of the company’s shares. However, the LSE usually needs a firm to float 50% of their shares to gain access to the indices and 25% to be considered premium listing, a status held by majorities of the listed companies.134135 This requirement, however, may not be applicable in all cases, and some flexibility is already noted, as the UK agencies may waive this if a firm is sufficiently deep to run smoothly. For instance, under the corporate governance regime, Saudi Aramco may opt for the comply or explain strategy. On the LSE, Saudi Aramco faces a major hurdle on the official position of membership of major stock market indices. That is, for a firm incorporated in another country, a 50% free float is necessary to get membership of the FTSE 100. The question of an appropriate indexation for Saudi Aramco on the LSE is not simple.
For corporate governance issues, Saudi Aramco will have to deal with the issues of transparency, corruption, valuation, and strategy.136 Moreover, studies associate corporate governance practices with organizational performance.137138139 It would also be expected to review the rights of shareholders, the specific composition of the board, particular roles and responsibilities of directors, proceedings of the board, the board committee, conflicts of interest, disclosure issues, and transparency.140141
Conclusion
Any markets hosting Saudi Aramco may expect to improve their fee income from the deal. It however appears that every exchange has its own challenges, which could hinder the cross-listing. While the two leading exchanges could adjust their practices and regulatory regimes, Aramco still faces the issue of corporate governance, which it should address domestically before seeking listing on the international markets.
Conclusion and recommendations
This chapter covers the conclusion and recommendations on what needs to be done in the case of Saudi Aramco’s planned sale of shares outside Saudi Arabia and why. Therefore, the chapter reflects on the prospective benefits that the foreign listing will bring to Saudi companies and any other observations. Factors that are most likely to influence the IPO are also covered. It is important to note that the initial public offering for such Saudi company as Aramco is viewed as a significant event in the international financial market. In spite of potential opportunities for the company to rely on other important stock exchanges in addition to New York and London, these markets are most interested in attracting Aramco, and moreover, the company is focused on listing its shares there. The key challenge is the evaluation of possible advantages and disadvantages of selecting this or that stock market. Apart from the Saudi stock exchange, it is not clear where else the company can and will cross-list efficiently, but positive market reactions are expected from listing on advanced exchanges.
Thus, the above discussions demonstrate fundamental issues surrounding the planned Saudi Aramco’s IPO and the ongoing reforms and changes in the Kingdom to prepare for the listing. From this perspective, any drawbacks in the reforms will significantly affect the IPO and its valuation. Although the government strives to eliminate major technical challenges, some fundamental issues, particularly related to corporate governance and corruption, seem to remain unaddressed. Eventually, the selection of a stock exchange will significantly influence the level of transparency. Saudi Aramco shares little or no information about its reserves, finances, activities, and strategies. Corruption and a lack of disclosure are major issues in this case that can serve as obstacles. Global listing requires enhanced transparency, the publication of much more information, and an independent board. Thus, the New York Stock Exchange and the London Stock Exchange expect more or less of the same code of conduct, an independent board, an audit team, a corporate governance regime, policies on risk management, and standards for financial reporting. Hence, non-compliance issues should be reported. More importantly, Saudi Aramco needs to improve its transparency aspects.
In this context, both the NYSE and the LSE are regarded as the key stock markets to choose from because of perspectives for Aramco to be listed internationally and attract a lot of global investors. Furthermore, these large markets are inclined to propose attractive conditions for such giants in the energy industry as Aramco. In addition, one should state that London and New York have their own interests in attracting Aramco because of outcomes of Brexit and Donald Trump’s policies that directly affect financial markets in the United Kingdom and the United States. However, the nature of the planned IPO requires the company’s executives and the Saudi government to pay more attention to the selection of the most appropriate option. The reason is that the company is oriented to listing only 5% of shares, and not all stock exchanges are interested in such offerings depending on their specific conditions. However, the London Stock Exchange seems to support Aramco in its intention, and this factor can significantly influence the company’s further policies and changes.
Still, it is important to assess all benefits and weaknesses of the choice in relation to the fact that Aramco not only wants to list only 5% of shares, but it also plans to access the biggest and the most influential stock market in the world. From this point of view, New York seems to be more attractive for the company. On the other hand, the NYSE’s standards regarding the disclosure of data related to oil companies can become a significant barrier for Aramco to overcome. This aspect should be viewed in relation to the NYSE’s efforts regarding rules on the percentage of shares to list on this market. If there are no changes in rules and policies regulating the IPO, it is almost impossible to discuss opportunities for Aramco to be listed internationally with the help of their 5% of shares.
In this context, Saudi Aramco can orient to choosing the LSE because of its obvious readiness to change specific policies and regulations regarding the IPO, as well as to address challenges related to Brexit. From this perspective, it is important to state that London needs some guarantees in order to preserve investors and the status of the largest European stock market, therefore, the attraction of Aramco can become an important step toward covering more Asian and Middle Eastern investors in addition to European ones. The comparison of potential outcomes associated with listing the Saudi company on global stock markets indicates that such leaders as Aramco have an opportunity to use the IPO for their benefit because the LSE and the NYSE are inclined to fight for the company’s shares listed on their markets. Nevertheless, it is also important to pay attention to the fact that, to use all benefits of being listed on international stock exchanges, Saudi Aramco needs to revise its certain corporate policies and principles to become more ready to the IPO.
Risks for Aramco’s plans to propose the sale of the company’s shares on the NYSE or the LSE need to be addressed because the status of the company influences its opportunities for being sold publicly. Challenges associated with the intense political interference should be taken into account by both executives of the company and representatives of the largest stock markets. However, it is important to note that ongoing changes demonstrate that the Saudi government is keen on tighter corporate governance controls. As a result, these initiatives would enhance transparency, curtail corruption, and boost investor confidence. However, compliance issues are most likely to arise if the company is listed on the international stock exchange. Overall, Saudi Aramco will have to address many issues rather satisfactorily in order to achieve its strategic goals associated with the planned IPO. These issues include the focus on the rights of shareholders, changes in the composition of the board, changes in roles and responsibilities of directors, proceedings of the board, alterations related to the board committee, as well as issues associated with conflicts of interests, disclosure, and transparency.
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Footnotes
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The present policy paper describes the two policy options for Saudi Aramco’s IPO plans. One is to abandon the idea of privatizing a part of the company focusing on preserving the status quo and nationalized governance. The other is to list Saudi Aramco’s shares on international stock exchanges. The evaluation of economic and political criteria that included upstream and downstream operations, as well as political risks, resulted in recommending the first policy option. Not letting in the foreign capital would safeguard the company from stock price fluctuations while preserving unchallenged national leadership and slower but steady growth.
Policy Problem
The policy issue discussed in the present paper is the listing of Saudi Aramco on domestic and international stock exchanges. This complex and multifaceted problem touches Saudi Arabia on the whole, as it is listing its core provider of national GDP. In such matters, there are no universally appropriate decisions, which substantiate the fact of the necessity of the present policy paper. The ambiguity of Saudi Aramco’s IPO is in the risks that threaten to undermine the stability of the company and the country that essentially owns it.
The sources of risks are multiple and lie in the sphere of politics, economics, and national security. The insecurity of the present fluid position of Saudi Arabia about this decision undermines the credit rating of the country and harms the company’s financial affairs. On the other hand, rash decisions may also create obstacles to long-term prosperity. In the political sphere, indecisiveness on the IPO may lead to missed opportunities and strategic alliances.
For instance, the United States as a key partner of UAE having assumed that the opinion of Saudi leaders on the IPO is still under consideration might continue to hold talks and develop strategies that are less productive to the former. Yet, the key concern is the cost of lost business opportunities. The continuous process of evaluation and re-evaluation of options without making a decision undermines the capacity of a corporation to develop in either direction. Thus, if IPO is held, then the company can obtain the chance to grow and elaborate on a strategic plan for further actions concerning the allocation of public funds, new share dissemination, or other issues.
If IPO is not held, then the company could focus on creating value within the realms of corporate governance and develop ways to operate more effectively with no shareholders involved. Thus, the indecision leads only to the waste of resources and does not contribute to the development of Saudi Aramco and UAE, which is why it is essential to present, assess, and evaluate policy options for the company, which will be done in this paper.
Context
The context of the initial public offering in terms of key actors was set around political leaders of the UAE and other nation heads. As such Crown Prince Mohammed bin Salman who, in an aspiration for an innovative corporate governance strategy and urge for reform in the economic sector, decided to announce an IPO in 2016. He stated that 5% of the company would be sold at the New York Stock Exchange (NYSE) and London Stock Exchange (LSE).
He estimated that the company value would then rise to $2 trillion (Hubbard). Such a statement aroused a lively interest in the company’s affairs among international media, financial institutions, and country leaders. However, as the decision was continuously postponed, a range of stakeholders became skeptical and the speculation in the media continued. It also led to media scandals on corruption that allegedly involved the Saudi Government and key financial and business actors (Hubbard).
Currently, corporations and national leaders announce that the IPO can occur, yet only under favorable circumstances and at the right moment. Thus, the possibility of IPO has not been dismissed completely yet. On the other hand, it is not present on in current national and corporate agenda either, as financial advisers and experts are no longer consulting the key decision-makers, at least publicly (DiChristopher).
The nature of IPO decision making in itself is typical for state-owned corporations. The existence of multiple risks and influencing factors require through and prolonged assessment. As for the confident analysis result, the scholars report that usually, state-owned firms tend to be undervalued during IPOs (Deventer and Malatesta 1659; Wang and Zhang 475). This identifies that optimistic estimations voiced by Mohammed bin Salman are untypical of IPOs.
In general, academics agree that listing national corporations on stock exchanges has its benefits and drawbacks which complicates the decision-making process (Tupper et al. 555). Tupper et al. also note, that foreign IPOs constitute almost 25% of all first-time listings which makes the issue a popular topic in international business (555). Therefore, the problem of Saudi Aramco’s decision to open itself for global capital is not unique.
Policy Options
The first option is to let Saudi Aramco remain a public company and cease all activities for preparing it for IPO. A considerable number of sources review the experience of private companies who decide to list their shares on the stock market, yet the IPOs state-owned corporations seem to be occasionally out of focus (Wang and Zhang 478; Tupper et al. 557). Decision making in IPOs is a complex process that requires consult from several financial agencies such as national and international banks.
Since such consultations have been provided to the government of Saudi Arabia as well as the corporate leaders, one of the options might be to completely renounce the idea of IPO. Such a course of action is dictated by the logic of the known events as well as calculations provided by Bloomberg agency and official information provided by trusted media sources.
Certain academics suggest that keeping state-owned enterprises public is a sound decision that can help such companies reach sustainable market value (Wagner 282). Also, some of the national oil and gas giants remain 100% nationalized such as the National Iranian Oil Company or Kuwait Petroleum Corporation who produce 4 million and 3.15 million barrels of crude oil per day respectively (Bloomberg a, b). Thus, this policy option is not unusual in global practice and theory.
Within the last decade, the government of Saudi Arabia was continuously assessing risks and benefits of IPO widely utilizing the assistance of the largest financial organizations within the country and abroad and still did not decide to list the company’s shares on any of the stock exchanges. This fact signals that there are no apparent and significant benefits of IPO under the current market, political, and other conditions. Conversely, if the best financial service agencies having much broader access to corporate financial data did not argue too actively for the IPO, it is probably the right decision to leave the company solely in the hands of the state.
The rough calculations provided by Denning to the Bloomberg agency suggest that a decision to list the company under the terms voiced by the Prince does not appear to be very realistic (a). According to his assumptions and research, the goal of achieving the company’s value at $2 trillion can be reached only under specific and fairly optimistic conditions. As such, the price per barrel of oil should be at least $80 to have the company valued at this price after the IPO is held.
Considering the last week’s average price of $55 per Brent crude oil, Saudi Aramco’s valuation might only reach one billion (Denning a; Nasdaq). In addition to that, given such high aims of the Prince, current oil prices, and subsequent risks of not reaching the goal, Denning rationalizes that many investors would require free cash flows no less than 5-8 percent (a). This factor can become a significant burden for the company.
In comparison to Exxon Mobile whose cash flow is estimated at only 3.9 percent, the 5-8 for Saudi Aramco could become a rather tough obligation to meet. Even though about a quarter of global crude oil and derivatives are provided by the UAE’s largest natural resource company, Saudi Aramco’s decision to hold an IPO in the nearest future on these terms is not looking very realistic. Given the current trend for undervaluation of companies during IPO, and the financial benefits researchers suggest this strategy holds, the listing option that currently circulates probably does not have substantial economic benefits to support such a decision.
Thus, the decision to abandon the idea of the involvement of foreign capital through the global issue of shares is the first option that Saudi Aramco could undertake under the present economic and political conditions.
The second option is to undertake an IPO in the nearest future and make 5% of the company listed in the form of shares on international stock exchanges such as NYSE and LSE. Making the company open for international funding could substantially increase Saudi Aramco’s development and expansion options. Given the amount of natural resource capacity that UAE possesses, the decision to increase volumes, quality, and other parameters could be wise and timely.
Many national crude oil harvesters such as Exxon Mobile, Royal Dutch Shell, Canadian Natural Resources, Gazprom Neft, Rosneft (Russian state-owned oil and gas companies), and other organizations already listed their shares on international stock exchanges. Indeed, each nation’s decision was more or less warranted from the standpoint of its unique political and economic situation. The control and safety from stock market panics that are not infrequent in the history of global trade are probably among the core concerns of the state-owned oil-producing companies.
The policy to hold an IPO has been forwarded initially by Crown Prince Mohammed bin Salman in 2016 and supported by certain other government officials (DiChristopher). Recently, the Crown Prince reaffirmed this decision, though the listing date was moved towards 2021 (Denning b). International practice quoted in research also suggests that IPOs among state-owned enterprises are not rare (Deventer and Malatesta 1659; Wagner 283). Certain researchers find that organizations with substantial contributions to the national labor market and economy demonstrate an increased probability of IPO events (Johansson et al. 271).
Yet, they also note that the correlation between such occasions tends to be stronger in private firms rather than national corporations. The scholars who assessed the Chinese experience of IPOs in the public sector suggest that politics produce a significant influence on listing decisions. Successful IPO events in public companies are associated with promotions in the political careers of the decision’s advocates (Johansson et al. 272). Thus, the decision to privatize a small share of the state-owned Saudi Aramco Corporation is an actual policy proposal that is also substantiated by global experience as well as scientific literature and corporate expansion logic.
The two policy options discussed above are fully-fledged policy dilemmas. Yet, if the IPO decision partly excludes the possibility of nationalization, the latter leaves UAE and corporate officials to return to IPO plans in the future thus making this policy opportunity compatible with the other one. Deciding to list Saudi Aramco’s shares will mean that that share of its value will be determined by foreign investors and this is not easily reversible.
Theoretically, practically, and legally, a company may opt for voluntary delisting and become nationalized again. Yet the tradeoff would most likely involve undermining the political ties and large shareholder connections UAE would have possibly gained as well as all other benefits. Davidson argues that the cases of nationalization and delisting are warranted and practiced in the global economic history mainly in times of recession or the threat of major economic damage to a country (188). Therefore, the second policy is in the large part a deal that has a limited possibility to be aborted.
On the other hand, opting for the first policy now would leave an opportunity for an IPO at any suitable time in the future. Arguably, announcing a decision not to list Saudi Aramco’s shares would not produce any major economic effect besides certain fluctuations in oil prices in the market. Leaving the situation at the status quo does not mean that the company cannot conduct an IPO at all. Yet, as noted by Wagner, the company that decides to list its shares on the stock market has to undergo certain internal corporate restructuring (282).
Therefore, theoretically, Saudi Aramco could institute a course of action and necessary changes in case it decides that the time for an IPO has come. Thus, the policy for nationalization or retaining the status quo does not contain any apparent tradeoffs except for national budget planning changes and political ties and is compatible with the other policy option.
Evaluation Criteria
The first core criterion for evaluating policy options will be the economic performance of the firm. This criterion is necessary because the economic success of the firm is the core indicator of its stability and subsequently, the strength of the UAE’s economic power and leverage (Wang and Zhang 480). In addition to that, economic activity and its effectiveness are the goals of any for-profit enterprise that guarantees its survival.
Among the key economic performance indicators through which the company may be assessed are net profits on the upstream, downstream, and midstream activities. According to current research, these activities represent core parameters that influence the strategies used to leverage oil barrel prices, purchasing power for raw materials, and offers the company flexibility in times of low oil price (Brasoveanu 10). The data necessary to conduct this analysis will require Saudi Aramco to reveal the information about all of its current activities in any sphere ranging from oil well exploration to refining and transportation of the final product.
Political criterion would also be paramount to utilize in the policy assessment as it provides a measure of the stability of UAE’s international connections. As oil prices and the stability of the market for natural resources are highly dependent on political ties and decisions, it is critical to know the political underpinnings of either policy choice (Piotroski and Tianyu 2). Thus, political risk assessment could become a critical factor in the evaluation of policy soundness.
The data required for measuring political impact and risk of a policy is a detailed overview of trade connections and volumes, official political statements, and results of international events related to oil and gas where UAE officials participate. Since economic parameters are inherently better predictable and measurable than political risks and impacts, the former will be given priority.
Evaluation and Assessment of the Options
Under the circumstances of the status quo and nationalization policy preservation, the company will operate with the revenues available to it from its operations. No additional foreign investment is considered as IPO plans are canceled. The information provided in the Saudi Aramco’s latest annual review dated 2017 lets one assess its main upstream and downstream operations. As the company continues to invest in the exploration of new sources of oil and natural gas, it should be safe to assume that this activity will be maintained further in the future at the same pace. Yet, as the report states, the demand for global energy demand will rise by 30% which will arguably require Saudi Aramco to increase the speed of the discovery and preparation for extraction (Saudi Aramco).
The increase in demand will affect not only upstream but also downstream operations. Currently, the maximum output of crude oil is estimated at 10.7 million barrels per day (BPD) (Saudi Aramco). Given the increased energy demands, this measure will have to increase to satisfy the customers. Yet, under the constraint of using only the profits from its operations as well as international loans and direct investments the company may fail to meet the demand fully.
Nonetheless, the company currently has plans to open several new extraction facilities in 2018, 2019, and 2020 (Saudi Aramco). Given the current influx of free funds to support these projects under continuing nationalized states the projects may be expected to be launched within the specified periods.
In terms of natural gas production, the company demonstrates a steady growth, which may substantiate the claim for addressing the rising demand in this regard. Saudi Aramco also announces its allegiance to new technologies that can help sustain growth, increase recovery, and exploration. The projects for the new technologies and equipment are currently in the testing phase with no launch dates specified (Saudi Aramco). It can be assumed that the financing cannot let the R&D process to unfold at full speed.
Downstream operations include plans to scale up the company’s chemical production, international product placement strategy, build new pipelines, and decrease CO2 emissions from operations (Saudi Aramco). All of these projects will require sufficient investments and straitening of international ties. The company reports a one percent increase in power efficiency, new integration projects and agreements with China, Malaysia, and Indonesia, and successes at employing technological advancements in refining oil. So far, it appears that the company demonstrates steady growth in the majority of spheres it marks as crucial. Yet, the limited nature of national reserves may hinder the growth potential of Saudi Aramco and the speed of implementing innovation.
Political risks under this policy are minimal as the company is largely independent of foreign influence on corporate decision-making. Retaining its self-sufficiency, the company can continue on its set course of development. Yet, as argued by (Piotroski and Tianyu 4), political connections to other countries may change as a result of unexpected events, which the nationalization policy does not effectively mitigate. The absence of foreign countries that have a share in Saudi Aramco to a certain extent protects the company from foreign security market perturbations as the company’s valuation is independent of the share price.
The second option to hold an IPO and raise the value of the company through the influx of foreign capital offers certain possibilities for growth while also allowing the room for risks. The above-mentioned plans and statistics could be improved in speed and effectiveness with the adoption of international investments. As estimated by the Crown Prince, the company would yield about $100 billion from the IPO, which would arguably increase the developmental capacities of the company in each of the spheres mentioned above. The construction of the new oil production objects would be completed faster as the necessary funds will be allocated more swiftly.
Thus, the company would have better chances of fully meeting the growing foreign demand for energy. Yet, the economic risks lie in the fluctuations of the stock market that may scale down the value of the company. Besides, the abnormally high valuation at the start may undermine the success of IPO as the experts suggest underpricing as the best strategy (Wang and Zhang 475). Finally, the entrance of a new company whose value is twice as big as one of Apple’s can unpredictably influence the market for securities.
In the sphere of politics, however, international shareholders might be more interested in the success of the company and thereby help stabilize the market climate. Also, listing stock on NYSE was favorably met by the U.S. leader, Donald Trump, which suggests the possibility for a tighter relationship with this strategic partner for UAE (Merced). In general, opening a broader path for foreign investors will help UAE become more involved in world politics that, under wise management and diplomacy, could yield substantial reputational and economic benefits.
Table 1. Comparative Analysis.
Policy option: Status quo preservation
Policy option: IPO enacting
PROS:
Growth Stability
Extensive and fast development
Security from financial perturbations
Involvement of international shareholders into safeguarding prosperity of the company
Security of national interest in corporate governance
Broader political connections
CONS:
Slower growth
Lack of defense from share price fluctuations
Limited nature of political connections in the oil and gas sector
Undermined national interests in company governance
Need for corporate restructuring
Policy Recommendation and Rationale
Given the analysis conducted above, the option to abandon IPO plans seems more sound and stable policy. While it does not provide fast growth opportunities and political benefits that can be gained through the international listing, Saudi Aramco’s safety and stability should be valued more. The reason for such a recommendation is that the largest national and global oil and gas company needs to prosper steadily and be safe from international perturbations as it is a guarantor of UAE’s economic growth and prosperity.
Above that, by official reports, steady development is demonstrated which substantiates the claim of autonomy of Saudi Aramco. The foreign capital may gradually increase its capacity for expansion, yet under low oil prices, the security market could be increasingly unpredictable. Thus, it opting for nationalization and preservation of the status quo is a safe and sound policy that could be recommended to UAE and corporate officials as a result of the present research.
Works Cited
Bloomberg (a). “Company Overview of National Iranian Oil Company” Bloomberg.com. 2018. Web.
Bloomberg (b). “Company Overview of National Iranian Oil Company” Bloomberg.com. 2018. Web.
Brasoveanu, Sergiu. “Oil and Gas Business in Changing Times.” Proceedings of the International Conference on Business Excellence, vol. 11, 2017, pp. 10-24.
Davidson, Nestor M. Nationalization and Necessity: Takings and a Doctrine of Economic Emergency. Property Rights Conference Journal, vol. 3, 2014, pp. 187-215.
Dewenter, Kathryn L., and Paul H. Malatesta. “Public Offerings of State-Owned and Privately-Owned Enterprises: An International Comparison.” The Journal of Finance, vol. 52, no. 4, 1997, pp. 1659-79.
Johansson, Anders C., et al. “Government Intervention in the Capital Allocation Process: Excess Employment as an IPO Selection Rule in China.” China Economic Review, vol. 44, 2017, pp. 271-81.
Tupper, Christina H., et al. “Capital Market Liability of Foreignness of IPO Firms.” Journal of World Business, vol. 53, no. 4, 2018, pp. 555-67.
Wagner, Rodrigo. “Can the Market Value State-Owned Enterprises without Privatizing Them? An Application to Natural Resources Companies.” Resources Policy, vol. 59, 2018, pp. 282-90.
Wang, Yong, and Xiaotian Zhang. “Strategic IPO Underpricing: The Role of Chinese State Ownership.” Value Creation in Multinational Enterprise, vol. 7, 2006, pp. 475-95.
Knowledge is considered a critical success factor for service-oriented and manufacturing-based organizations and economies (Brčić & Mihelič, 2015). Indeed, today, many organizations understand the importance of intellectual capital as a strategic resource for modern-day economies. Thus, a company’s ability to generate, share and preserve intellectual capital is deemed an area of strategic competitive advantage (Francesca, 2017; Argote, 2012). To capitalize on the strengths and importance of knowledge to modern societies, companies need to ensure it is freely shared through knowledge sharing.
Knowledge exchange is an independent discipline that falls under the concept of intellectual capital management (Brčić & Mihelič, 2015). Such systems exist because intellectual capital is commonly confined within specialized domains. Different researchers have unique conceptions of the concept; however, most of them agree that it refers to the provision or receipt of information relating to a specific organizational task (Argote, 2012; Brčić & Mihelič, 2015). Others say it refers to the sharing of information relating to organizational expertise, or the generation and use of feedback pertaining to a specific product or service (Francesca, 2017; Argote, 2012).
Simar and Rahmanseresht (2017) say that companies, which have managed to narrow their knowledge gaps are able to deliver superior value to their customers, while those that are unable to do so constantly have to recruit and train new talents – a process which leads to significant cost increments, lack of innovation, and poor service delivery. Thus, the ability of organizations to thrive in the wake of a highly competitive “knowledge industry” comes from their ability to use traditional resources in new ways (Simar & Rahmanseresht, 2017). Relative to this discussion, knowledge resources empower organizations to boost their key competencies in ways that they would otherwise be unable to, had they lost the vital resource. The same knowledge reservoir allows them to improve their competitive position in the marketplace by maximizing the value of their resources. Based on these discussions, the management of an organization’s intellectual capital is largely intended to improve its competitive position. Such an advantage would enhance an organization’s strategic position and maximize its resource capabilities as well (Simar & Rahmanseresht, 2017).
The need for intellectual capital management, as a key organizational process, partly comes from the understanding that in today’s information-centered and global economy, traditional factors of production are equally important as what employees know (Argote, 2012; Brčić & Mihelič, 2015). In other words, resource capabilities should be understood to have the same power as knowledge capabilities. Thus, prosperous companies in the 21st century are not only those which have the best access to land, factories and similar resources, but also those that are able to organize their knowledge management systems effectively.
Simar and Rahmanseresht (2017) support this fact by saying that some organizations have failed to attain their goals not because of their inability to access natural resources, but because of their inability to acquire, organize and transfer knowledge. Furthermore, based on the same assessment, it has been established that most companies, which are successful at managing their knowledge platforms have a higher probability of outwitting their competitors through the adoption of superior operational practices (Meier-Comte, 2012). This statement is further augured with the success of some organizations, which have adopted total quality management (TQM) concept, which postulates that all employees of an organization should always maintain a high standard of operation for their activities. TQM is often safeguarded through succinct knowledge management processes that sometimes involve sharing the same resource. Collective learning processes and system engineering techniques are also aimed at improving organizational activities because they are often hinged on knowledge-based resource systems that generate enviable competitive advantages for companies (Simar & Rahmanseresht, 2017). However, it is equally important to point out that some firms prefer to use centralized knowledge management systems as opposed to shared ones. For example, those that are associated with sensitive matters prefer this system to the shared one.
There are different types of knowledge shared across various organizational platforms. However, as Fawzy (2013) points out, the information shared is either explicit or tactical. Regardless of the typologies mentioned, managers are starting to acknowledge the need for knowledge sharing as a key organizational process because they say it is critical in transforming individual data into organizational resources (Fawzy, 2013). This fact is supported by several studies, which show that knowledge sharing leads to intellectual capital creation and idea generation (innovation) (Fawzy, 2013; Francesca, 2017; Argote, 2012). Other studies have shown that it leads to improved problem solving (Argote, 2012; Brčić & Mihelič, 2015). These findings have prompted many observers to contend that the process of sharing intellectual capital resources is a key ingredient in achieving innovation within different organizational departments (Fawzy, 2013). Other studies have associated it with team creativity and ultimately, improved organizational performance (Brčić & Mihelič, 2015).
Managing an organization that has different groups of employees may lead to conflicts and disagreements that would eventually hinder organizational productivity. In some firms, knowledge gaps are linked with knowledge-based complexities that hinder the decision-making process, making it slower and inefficient (Saleh, 2012; Shaw, 2013). However, in others, there is a conscious decision not to share information because of the nature of operations, or any other issue relating to their performance. For example, knowledge gaps in the army are deliberately created. Therefore, discretion is often applied when managing knowledge in such contexts. It is also common to find these kinds of problems occurring simultaneously in environments characterized by significant knowledge gaps.
In extreme situations, this problem could lead to the failure of organizations to distinguish between interpretive failures and information shortcomings associated with decision-making procedures and company processes (Simar & Rahmanseresht, 2017). Here, knowledge sharing emerges as a dynamic process that requires vibrant interactions among different cadres of employees. Based on this understanding, it is important to understand the main drivers of this process and the influence of micro-level constructs of intellectual knowledge resource management on organizational outcomes.
The focus on micro-level constructs of knowledge management is deliberately selected as the premise for this paper because past research studies have often concentrated on macro-level constructs, such as dynamic capabilities and absorptive capacities, when investigating knowledge management. These macro-level attributes are often executed at a firm level and could be argued to be “out-of-touch” with some subtle aspects of operational performance, such as how employees interact with each other. Indeed, it is further argued by some observers that macro-level constructs are not firmly entrenched in micro-foundations of knowledge management (Francesca, 2017).
As mentioned earlier, micro-level foundations largely refer to the actions and interactions among individuals in an organization. They may include team-building efforts, the nature of employee relations with their supervisors, decision-making procedures, and worker appraisal processes among others (Francesca, 2017). These micro-level processes often underpin the knowledge management process. The failure of past researchers to pay attention to this important area of study in knowledge management has led many of them to question their origins and foundations. Therefore, the focus on micro-level constructs for understanding knowledge management is a different approach for investigating knowledge sharing and outlines the basis for which this study is premised on. Based on the understanding that micro-level constructs of knowledge management place workers at the center of knowledge management, differences between unique cadres of workers become central to understanding how knowledge is shared.
One of the most notable challenge organizations experience today when trying to understand knowledge sharing is comprehending the knowledge gap that exists between older and younger employees (Saleh, 2012). These two groups of workers denote the differences in intellectual capital between different generational cohorts. Indeed, researchers have observed that the seamless transfer of knowledge between different generations of workers is important in the realization of organizational success (Saleh, 2012). Pieces of evidence that support the above assertion point out to the possibility of cross-generational conflicts that could limit knowledge transfer (Shaw, 2013). Such conflicts could emerge from differences in beliefs, values, and attitudes about life (between the young and the old) that could ultimately influence how they carry out their work, or interact.
Indeed, although many organizations spend a lot of time and resources in trying to realize diversity within their workforce, with most attempts (at fostering diversity) being focused on realizing ethnic and gender differences, generational diversity has been relatively unexplored. Indeed, as Shaw (2013) points out, most organizations are struggling to balance the different needs and working styles associated with varied cohorts of employees. Contrary to the general expectation that managers should try to align the needs of these groups of employees with an organization’s needs, most of them have left workers to figure out this problem by themselves. Although most observers regard differences in inter-generational styles as a serious issue, they tend to hinder team performance, thereby leading to frustration, conflict and poor performance (Saleh, 2012; Shaw, 2013).
Underlying the problem is a general understanding of how younger and older employees think. Many studies have tried to investigate these differences with three main ideologies representing groups of workers dominating most literatures. The first group of workers is the baby boomer population, which includes employees who were born between 1946 and 1964 (Acton, 2012). This population is often pitted against generation X, which is comprised of employees who were born in the 1965s and 1980s. The last group of workers is the millennials (or generation Y), which is comprised of employees born between 1980 and 1999. Research has pointed out that these groups of employees have different work practices that could be analyzed differently, based on their views, beliefs and values about work (Liebowitz & Frank, 2016).
Although the differences among these groups of workers will be further explored in the next chapter, Saleh (2012) says one argument touted by the “baby boomer” population against “Generation X” is the failure of the latter to use time-tested strategies because of their perceived lack of patience. Another belief about “Generation X,” cited in some literatures, is that they are often self-absorbed and too “spoilt” to appreciate what is around them (Liebowitz & Frank, 2016). Comparatively, the “Generation X” see the “Baby boomers” as being too rigid to change (Saleh, 2012; Shaw, 2013). In other words, some of them say that the latter are “out of touch” with reality, because they are set in their ways too much to notice that they could do things in a better and more efficient way (Saleh, 2012; Shaw, 2013).
An abundance of evidence shows how different generational cohorts have varied experiences and knowledge about organizational processes (Saleh, 2012; Shaw, 2013). These knowledge gaps are detrimental to organizational sustainability because they could cause several problems, such as poor communication between different levels of employees and poor work coordination (just to mention a few) (Saleh, 2012; Shaw, 2013). These problems often arise because of divergent views and intellectual misinterpretations that could occur when different cadres of employees analyze the same sources of information (Simar & Rahmanseresht, 2017).
This study takes a keen look at how individual factors influence knowledge sharing in one organization – Saudi Aramco. Saudi Aramco is an energy company in Saudi Arabia. Its operations are mostly concentrated in the energy sector, with some literatures showing that its key focus is in the petroleum industry (IBP, Inc., 2015). A few of the main initiatives of the firm include optimizing the organization’s processes, building its capabilities, growing the business, and engaging the kingdom (Saudi Aramco Inc., 2015). Saudi Aramco has not had a long history of knowledge management; in fact, it only recently adopted the operational excellence management system in 2013 (Saudi Aramco Inc., 2015). After this process, all subsidiaries of the organization are supposed to operate under this banner. The company specifically operates operational excellence 12.7, which relates directly to knowledge transfer (IBP, Inc., 2015). However, this platform has not solved the knowledge gap problem between the young and older workers. This is an issue for the organization because it seeks continuity for all its workers. Details about this problem are explained in the section below.
Research Problem
After the Second World War, oil was discovered in Saudi Arabia. At the time, an American company known as Chevron dominated the global oil exploration business (OBG, 2013). This company partnered with Texaco to form what is known today as Saudi Aramco (OBG, 2013). The company’s name was simply an acronym for the Arabian American Oil Corporation. When there was a global trend to nationalize companies in the 1980s, the Saudi Arabian government bought the company’s assets and eventually controlled its majority shares (OBG, 2013). However, most of the organization’s employees were maintained from the traditional organizational structure (OBG, 2013). For more than three decades, there has not been any substantial change of key workers in the organization. This is a problem because most of the original employees are due for retirement. Based on this issue, Saudi Aramco, has experienced many challenges in its operations, including (but not limited to) poor trust in business, sustainability challenges, corporate brand and reputation issues, geopolitical/economic risk management, customer relation problems, inadequate innovation, operational excellence challenges and human capital problems (Saudi Aramco Inc., 2015).
Although the aforementioned factors affect the company’s operations, human capital problems emerge as the top concern for the firm because there is a growing body of ageing workers who do not interact openly with their younger counterparts (OBG, 2013). This concern has inhibited the realization of one of the main objectives of Saudi Aramco, which is to develop a reliable workforce that could meet the evolving technical and technological needs of its petroleum engineering processes (OBG, 2013). This is also a problem shared by most petroleum and gas companies in the kingdom because the Saudi Arabia Oil and Gas (2017) says many of such firms experience a looming problem in their human resource strategies because they lose well-trained, technically experienced, and skilled personnel because of retirement.
Many employees who work in Saudi Aramco were employed after a successful hiring campaign in the 1980s that saw many of them secure lucrative employment opportunities in the organization when the prices of oil was high (USA International Business Publications, 2015). The impending retirement of most of these workers from the workforce has made it imperative to develop a knowledge transfer program that would see older workers transfer useful technical information to the younger workers.
The knowledge gap present at Saudi Aramco is mostly characterized by the presence of a significant knowledge gap between employees who have worked for more than 23 years and those who have worked for less than a decade. Those who have worked for more than 23 years have a significantly higher level of knowledge compared to those who have worked for less than ten years.
The main problem experienced at Saudi Aramco is the lack of a knowledge transfer mechanism that would allow the organization to function properly in the event that many of its experienced employees retire at once. This issue could be problematic for the organization because it would signify a loss in knowledge that could impede the organization’s operations (OBG, 2013). This issue highlights the need for the oil company to preserve the intellectual capital resources of the organization because its operational practices require technical expertise that rests with those who have worked in the organization for a long time.
Underlying this problem is the risk that most employees who will leave the organization will take vital knowledge with them (USA International Business Publications, 2015). This risk could come at a huge cost to the firm because it has spent a lot of time and resources nurturing and teaching existing employees how to conduct critical knowledge processes in the company. To meet the challenges that bedevil the organization, there needs to be a sound plan of knowledge transfer between older and younger workers.
Purpose of Research
This study is designed to understand the predictors of knowledge sharing in Saudi Aramco and to emphasize the relevance of knowledge sharing across different employee groups that work in the oil company. Indeed, knowledge sharing could happen across different employee groups that could be divided along team lines, age differences, roles, responsibilities and other measures of organizational functions. The focus of this study will solely be on intra-organizational knowledge sharing and will emphasize on understanding the individual factors that influence knowledge sharing in the organization. This study would also strive to understand the level of employee satisfaction regarding the quality and quantity of information being transferred from older employees to the younger ones. Getting such information from workers could allow the organization to improve its formal knowledge transfer programs, such as the virtual reality tool, which allows younger workers to learn and understand the company’s plants (Saudi Aramco Oil Co., 2017).
Importance of Study
As mentioned in this paper, knowledge is increasingly emerging as an important resource for most organizations. In fact, some of the research studies reviewed in this document show that it constitutes among the most critical tools for improving an organization’s competitive advantage (Simar & Rahmanseresht, 2017; Argote, 2012; Brčić & Mihelič, 2015). Although its importance is rarely disputed, unless knowledge is shared freely among employees, organizations would be limited by their inability to exploit their potential for maximizing their intellectual capital. Of particular importance to this study is the need to understand how knowledge is shared across different generational cohorts at Saudi Aramco. This view is vital to the sustainability of the company because older employees are supposed to share their intellectual resources with their younger counterparts.
This study would take a keen look at how individual factors influence knowledge sharing in the organization. The individual factors include willingness to share information, motivation to share data, the quality of knowledge people are willing to share, and the level of collaboration people foster when doing so. Part of the study would also seek to understand the perceptions of the quality and quantity of information shared across cross-generational relationships. Therefore, the study would help in preserving the institutional memory of long-term employees and help transfer the same knowledge to newer workers. This analysis would help Saudi Aramco to store or preserve the knowledge held by their most experienced employees before they leave the organization.
The need to fill the knowledge gap in the Saudi-based oil company has been supported by many researchers, such as Francesca (2017), who say that the failure to do so is akin to dismantling an organization’s knowledge and intellectual assets. Here, knowledge is not conceived to be a product that could be packed and distributed, but a resource that should be shared. The transfer of current knowledge to new employees and the process of generating new ones are derived from the interaction between older and younger workers in the organization. If left unaddressed, the differences between both sets of employees could significantly affect how the organization operates (Simar & Rahmanseresht, 2017). Concisely, similar to how organizations have improved ethnic and gender diversity in their workplaces to increase their productivity, filling the gap that exists between the aforementioned groups of employees could yield the same outcomes.
Research Statement
The aim of this research is to bridge the knowledge gap at Saudi Aramco. The research goals are as described below.
Research Goals
To provide an inventory and catalogue of Saudi Aramco’s critical activities
To determine the risk of loss of critical knowledge, skills and behaviors at Saudi Aramco
To prepare Saudi Aramco to minimize its knowledge gaps
To establish knowledge transfer relationships between knowledge providers and knowledge recipients at Saudi Aramco
To develop knowledge transfer plans for identifying at risk knowledge at Saudi Aramco
The aforementioned goals are attached to specific objectives, which are to be pursued in the study. The objectives appear below.
Research Objectives
To identify at-risk critical activities (knowledge)
To identify employees who have knowledge and experience of value (knowledge providers)
To transfer knowledge as efficiently and as effectively as possible to those who need it (knowledge recipients)
Guiding the research will be a set of questions that appear below.
Research Questions
What are Saudi Aramco’s critical activities?
Which employees of Saudi Aramco have the knowledge and experience of value?
What is the nature of knowledge transfer relationships between knowledge providers and knowledge recipients at Saudi Aramco?
How could Saudi Aramco bridge the knowledge gap between the older and younger employees?
Research Hypotheses
H1: Critical activities have an effect on knowledge transfer.
Ho: Critical activities do not affect knowledge transfer
H2: Risk of loss has an effect on knowledge transfer.
Ho: Risk of loss has no effect on knowledge transfer
H3: Communication skills have an effect on knowledge transfer.
Ho: Communication skills have no effect on knowledge transfer
H4: Culture has an effect on knowledge transfer.
Ho: Culture has no effect on knowledge transfer
H5: The demographic information (gender, age, nationality, educational level, work field, work experience, job position, and training) have statistically significant differences on Knowledge Transfer.
Ho: The demographic information has no effect on knowledge transfer
Expected Outcomes
The expected outcomes of the research are as follows:
To create a cost-effective process to develop and retain talent at Saudi Aramco
To preserve the institutional memory of long-time employees and transfer that knowledge to younger workers
To store and transfer the lessons learned from experienced workers before they leave employment
Dimensions That Would Be Explored In the Research (Scope of Research)
Some key dimensions of knowledge management that would be explored in this study include the nature of relationships between older workers and newer employees at Saudi Aramco, knowledge transfer structures in the organization, and critical activities that are susceptible to the loss of vital knowledge in the company. These dimensions of research will address the main tenets of intellectual capital resource management in the organization, as proposed by Argote (2012).
This study will be different from many others that have investigated knowledge sharing in organizations because the above dimensions of study focus on micro-level constructs of the same issue, as opposed to macro-level constructs which have been highlighted in other studies. Four micro-level constructs will guide the researcher – willingness to share information, communication structures for sharing information, motivation to share data, and collaboration among employees when sharing knowledge. These four concepts of individual interactions define the scope of this study because they are the main catalysts of knowledge sharing in organizations (Francesca, 2017; Argote, 2012). The scope of this study would also be limited to intergenerational knowledge transfer in one organization – Saudi Aramco.
Significance of the Research
The findings of this study will be important to the prosperity of Saudi Aramco because they could create an emphasis on employee development in the organization. Similarly, the knowledge that will be derived from this study will be instrumental in creating cost-effective processes to develop or retain talent. This way, Saudi Aramco will be better placed to preserve its institutional memory. At the same time, it will be in a position to transfer the same knowledge to newer workers effectively. Thus, it would be possible for the company to store and transfer the knowledge held by their most experienced employees before they leave the organization.
The findings of this study will not only be useful in minimizing the knowledge gap that exists in the organization, but also align individual and company goals. This way, there will be a greater focus on job-specific development and a preservation of the critical knowledge present in the organizations. Moreover, through the process, there would be a greater facilitation of efficient and effective job-specific development in the firm.
By adopting some of the recommendations outlined in this study, Saudi Aramco could also meet its short-term and long-term goals. The short-term goals include an improvement in the speed and ease through which it could undertake knowledge transfer, and an increased level of efficiency for improving existing communication styles and network operations. Other short-term goals that could be experienced by the company include improving work effectiveness in the organization (such as improved problem solving), encouraging more innovative and out-of-the-box thinking and the prevention of a “re-invention of the wheel” because younger employees would be learning from the older ones. Some long–term goals that could be enjoyed by the organization include inculcating knowledge transfer in the company’s culture and allowing knowledge management to constitute an organization’s key functions.
Definition of Terms and Key Concepts
Knowledge – employee skills and experiences
Knowledge Gap – The difference between what an organization can do and what it is required to do, relative to knowledge management
Knowledge Management – The art of managing knowledge
Knowledge Transfer – The art of exchanging knowledge among different groups of workers
Generational Cohort – A group of workers defined by an age group
Intellectual Capital – The intangible operational resources of an organization
Literature Review
This chapter contains a review of what other researchers have written about the research issue. In this section of the document, evidence would be provided to show how specific theories and models of knowledge management apply to the research topic and how they align with the research goals. The conceptual framework of these discussions appears below.
Conceptual Framework
Recent studies have departed from the conventional definitions of knowledge and focused on the relational nature of the concept. According to the latter view, knowledge should not only be transferred from a selected group of employees to another, but also be used to create value in an organization (Jasimuddin, 2012). In this regard, intellectual capital management emerges as a process of wanting to know more (Jasimuddin, 2012). This reasoning is regarded as the occupational community perspective and has been widely used in understanding the social and situational context of knowledge management (Abbott, 2016; King & Lawley, 2016). Within the same framework, social interaction within communities could be widely perceived as the main context, or platform, through which knowledge sharing takes place.
The occupational community perspective does not only regard intellectual capital management as a process that occurs at a social and actionable level, but also at a personal level. The focus on the micro-level interactions gives us an in-depth insight into the knowledge processes that characterize the relationships people or organizations build within this system. As Simar and Rahmanseresht (2017) observe, the focus on alliance building as a unique level of knowledge management system tends to focus on knowledge management at organizational levels. Nonetheless, this analysis has also included the role of interpersonal relationships within the wider structure of knowledge management. While different studies have shown that knowledge management occurs at organizational levels, knowledge sharing tends to be more profound at an interpersonal level (Simar & Rahmanseresht, 2017). Haider and Mariotti (2017) support this assertion by saying that informal contacts were instrumental in gaining access to information that would otherwise not be available in the public domain. Haider and Mariotti (2017) also add that the exchange of information across different organizations mostly occurs through informal contacts.
The conceptual framework for this study will be based on the processual approach of knowledge management to understand how to fill knowledge gaps between different groups of employees. Jasimuddin (2012) defines process as that which involves the spread of information sharing activities over a specific period. Abbott (2016) takes a different stand on the issue and says that process refers to a specific focus on complex organizational activities that occur over a specific time. Organizational phenomena categorized this way include (but are not limited to) cultural exchanges, decision-making processes, and structural change processes (Jasimuddin, 2012). Many research studies have evaluated this conceptual framework by paying a close attention to the nature of interactions among different stakeholders as a measure of how they exchange knowledge and interact with each other (Abbott, 2016; King & Lawley, 2016). Although many processual analyses use time as the main unit of analysis, the process does not only stop at this point of analysis; instead, it extends to the conceptualization, analysis, and description of events or activities in an organization that fall within the context of knowledge management. The basic nature of the processual approach of knowledge management is the understanding that social interactions and knowledge management often occur across a specified time. Here, the period taken for knowledge exchange to occur and context, which this process occurs, are at the center of all social interactions that lead to knowledge exchanges (King & Lawley, 2016). The uniqueness of this approach is temporality, which makes it unique from other frameworks of analysis.
The driving assumption behind this conceptual framework is the understanding that social interactions often occur dynamically and not necessarily in a steady manner. From an organizational perspective, this conceptual framework recognizes the duality of agency and context when investigating knowledge transfer issues. This analysis shows that contexts have always shaped the nature of knowledge transfer, while actors are often producers of the same process. This same analysis shows that actions are the main drivers of the processes that lead to knowledge exchange. However, at the same time, the entire chain cannot only be explained by the actions of one individual. Within this analysis, people’s actions are viewed within varied, but specific, contexts that ultimately limit the kinds of information that could be exchanged. The insight and influence of information processing are also limited by the same context. The social interaction that occurs between agents and their operational context is often analyzed through a cumulative process. Although the field of processual analysis is still young and the boundaries of analysis not clearly defined, the case study approach has been commonly accepted in current research analysis because it focuses on issues and events that are integral to the understanding of a research phenomenon. This approach is also adopted in this study.
What Is Knowledge?
The historical understanding of knowledge is shaped by the work of different scholars, poets, and academicians. For example, Ferdowsi and Francis Bacon, who are well-known poets, have explained knowledge in artistic contexts, such as poems, songs and other diverse literary works (Simar & Rahmanseresht, 2017). Some literatures also point out that there was a time people were often defined by the kind of knowledge they had (Schiedat, 2012; Ray, 2013). Simar and Rahmanseresht (2017) investigated the concept of knowledge and said that it has undergone a metamorphosis that is characterized by three evolutionary phases.
The first phase is one that took place before 1700 A.D. During this period, there was a general attitude among managers that meant that knowledge should be substituted for wisdom and enlightenment should be pursued at all times (Simar & Rahmanseresht, 2017). The second phase occurred between 1700 and 1800 A.D (Simar & Rahmanseresht, 2017). This era heralded a period where technology was pursued as the main basis of knowledge creation. This phase also heralded a stage in knowledge development where there was the systematic organization of knowledge and a resurge in the importance of setting goals to guide the process (Schiedat, 2012; Ray, 2013). The third phase of understanding knowledge happened in 1800 A.D where some researchers used scientific management principles to improve the discipline (Schiedat, 2012; Ray, 2013). These principles were meant to consolidate employee skills and experiences.
Before the post-modernist era of managing intellectual capital, managing knowledge was a concept mainly sourced from the tangible assets of an organization, such as cars, inventory, machinery and equipment (just to mention a few) (Schiedat, 2012). Most researchers termed these sources, associated with the generation of intellectual capital, as having structure and tangibility. They were also synonymously referred to as hard capital (Simar & Rahmanseresht, 2017). However, in today’s economy, the intangibility of a resource is as important as the need for having tangible resources (Ivey, 2014). Such intangible resources include organizational culture, process systems, effective teamwork, and innovative networks (Ivey, 2014). Nonetheless, researchers agree that the concept of knowledge management stems from three key resources. The first one is religion and philosophy, which helps to comprehend the nature and role of knowledge. The second origin of the concept comes from psychology, which has helped to understand the role of knowledge in organizational behavior. The third root of the concept is economics and social sciences, which have helped researchers to understand the role of knowledge in the workplace (Simar & Rahmanseresht, 2017).
Types of Knowledge
There are two main types of knowledge highlighted by several research studies, which have explored knowledge gaps in organizations – explicit and tacit knowledge. They are discussed below:
Explicit Knowledge: Explicit knowledge is both qualitative and quantitative, in the sense that it can be described both numerically and using words. Explicit knowledge can also be easily shared across several platforms and in different forms, including files and videos (Simar & Rahmanseresht, 2017; Argote, 2012).
Tacit Knowledge: Tacit knowledge differs from explicit knowledge because information is often acquired through employee experiences. Such information is often not freely available for transfer because it is still held by individuals and has not been recorded or documented. Some forms of tacit knowledge that could manifest in organizations include information that is obtained from having good competence, decision-making skills, work ethics, social networks, and values (Simar & Rahmanseresht, 2017; Argote, 2012).
Knowledge Management Gaps
According to Allen and Beech (2013), knowledge gaps refer to “demarcate absences” (p. 56). Generally, they yield to adverse organizational outcomes, which signal a weakness on the part of the knowers and, by extension, a lack of ideas, practices and networks within an organization that lead to the negative outcomes in the first place. Since ideas, practices and knowledge are among the main constituents of an effective knowledge system, the lack of these attributes means certain domains would be inaccessible. The actor-network theory affirms this assertion through a statement shared by Allen and Beech (2013) which says, “Knowledge gaps are domains unpopulated by different actors, where enrollment becomes a practical impossibility because there is nothing or no one to enroll” (p. 13). The social network theory is also applicable here because it shows that knowledge gaps are symbols of structural holes in the organization (Brčić & Mihelič, 2015). In other words, they delineate paths of greatest resistance and by virtue of doing so; they divert an organization’s resources to paths that have the least resistance. This statement means that institutional arrangements are reinforced and the status quo prevails, or questions about what could be of an organization left unanswered. Based on this assertion, knowledge gaps emerge as latent structures of different organizations. On one hand, they facilitate knowledge exchange in specific company domains and on the other hand, they foreclose possibilities in other organizations (Allen & Beech, 2013).
Based on the above assertions, knowledge gaps appear as social products that have a profound social effect on the society. In principle, both of these effects are measurable and identifiable. Nonetheless, as Allen and Beech (2013) point out, knowledge gaps are also social processes. In other words, they are shaped by human practices and interactions. Organizational practices and institutional pressures also affect the same gaps. Although these elements are variable, they are not evenly distributed in different social contexts. Therefore, in addition to describing the social features of these knowledge gaps, as highlighted by the social exchange theory, it is equally important to explain their distribution across knowledge systems, relative to the processes that lead to their creation.
Generally, knowledge management gaps often exist when there is a difference between what organizations can do and what knowledge management systems help them to achieve. Different studies have come up to explain the concept. The most notable one is by Simar and Rahmanseresht (2017), which defines the knowledge gap as what a company should do and can do with respect to knowledge management.
Some studies point out that the main types of knowledge gaps are socioeconomic and socio-specific. Tofanelli (2012) says some of the intellectual capital gaps seen in today’s organizations result from infrastructural gaps. Additionally, he says that the main effect of these infrastructural gaps is the inability for organizations to develop effective systems for managing knowledge (Tofanelli, 2012). King and Lawley (2016) add to this conversation by saying that knowledge gaps often suffice when organizations do not understand how to bridge the gap that exists between the processing and demand for current knowledge. Simar and Rahmanseresht (2017) also adopt the same approach by saying that this gap exists as the qualitative and quantitative difference between existing and required knowledge.
Although the above-mentioned researchers have different conceptualizations of what knowledge gaps entail, they generally agree that the gaps stem from four areas of operational management – strategy, planning, implementation, and perception. Cumulatively, the researchers point out that the failure to recognize these knowledge gaps could have significant consequences for organizations because they would be engaging in a process that is flawed, relative to the problems they will experience in the implementation stage (Simar & Rahmanseresht, 2017). Therefore, it is important to engage in different knowledge management processes, such as a requirement analysis and a risk management process, before designing or implementing knowledge management systems.
Types of Knowledge Gaps
Discussions about existing types of knowledge gaps have arisen from studies that have tried to explain how employees interact with one another (socially) to acquire new knowledge or retain existing ones. Nonetheless, it is important to understand these intellectual capital gaps because studies have shown that they are vital to the sustainability of organizations (King & Lawley, 2016; Tofanelli, 2012). A study done by Kriesi (2012) to identify the main types of intellectual capital gaps through a succinct processual review, established that there were five main types of knowledge gaps. These gaps address different intellectual capital management requirements that are central to this analysis. They are further explored below.
Physical Capital Knowledge Gaps:Physical capital gaps stem from knowledge types that are related to managing capital resources, such as the traditional factors of capital (Kriesi, 2012). Within this analytical scope, Kriesi (2012) says this knowledge gap could occur if some employees do not understand how to operate machinery, how to draw operational plans, or how to make use of existing tests required in their operational plans.
Intellectual Capital Knowledge Gaps: This category of knowledge gap refers to organizational skills that are needed to implement specific aspects of a company’s management strategy (Kriesi, 2012). Handzic and Bassi (2017) add that this type of gap emerges when there is a lack of operational skills to support management expertise. Some aspects of organizational plans that could be affected by the lack of proper organizational skills include how to manage operations, how to make decisions, and how to solve problems (Handzic & Bassi, 2017). The most important aspect of intellectual capital knowledge gap is the realization that the knowledge gap exists in the first place (Kriesi, 2012).
Relationship Management Knowledge Gap: This type of knowledge gap often exists in organizations that are service-oriented because research shows that organizations that treat their customers poorly often suffer from this type of knowledge gap (Handzic & Bassi, 2017). Poor relationships within markets, contractors and subcontractors are also other symptoms of the existence of the knowledge gap. Simar and Rahmanseresht (2017) add that this gap does not only affect how organizations maintain existing relationships with their clients, but also how they could forge new ones with others.
Social Capital Knowledge Gap: This type of knowledge gap often thrives when organizations do not have a proper understanding of how to develop trust or trustworthiness with their business partners or customers (Ngeloo, 2017). How organizations treat their partners, the kinds of roles and responsibilities they assign them and the kind of independence they give them to carry out these duties partly contribute to the creation of these knowledge gaps (Simar & Rahmanseresht, 2017). Based on the key areas which this knowledge gap affects, organizations which tend to rely on successful partnerships for their success tend to be most affected (Ngeloo, 2017). One interesting angle to this analysis is that the knowledge gap also relates to the need for organizations to manage their intellectual capital management challenges by understanding their localized employee relationships. Simar and Rahmanseresht (2017) have also included this gap in their research by saying that organizations often learn from their experiences with other organizations when forging new relationships with others. This way, the social capital gap decreases.
Cultural Gap: As its name suggests, the cultural gap often arises when organizations fail to understand how to navigate through a multicultural business environment (Meier-Comte, 2012). In this regard, there is a problem associated with the improvement of work practices, especially in environments where organizations want to change their culture. This gap is likely to affect different management techniques applied in organizations, such as teamwork and problem solving initiatives. According to Simar and Rahmanseresht (2017), different organizations fill the above knowledge gaps by undertaking unique knowledge processes. Some of them include collaborating with other firms, improving internal knowledge management systems, and disseminating knowledge to concerned parties (Simar & Rahmanseresht, 2017).
Knowledge Gap Model
The knowledge gap model adds to our understanding of knowledge as a critical organizational resource. It presupposes that knowledge is a type of wealth, which is unevenly distributed among people of higher and lower socioeconomic status (Sloan, 2014). In other words, it argues that as information slowly diffuses to the society through different modes (such as mass media and word of mouth communication), people of higher socioeconomic status tend to acquire it faster than people of lower socioeconomic status do (Sloan, 2014). Thus, the knowledge gap between these two segments of the population tends to increase (Ray, 2013).
The same phenomenon also happens in organizations because studies show that cohorts of employees acquire and process knowledge differently (Ray, 2013). If we use the above example, we find that managers are the same as people of higher socioeconomic status who tend to acquire knowledge faster than people of lower socioeconomic status (who could be likened to lower level employee groups). This knowledge gap model was introduced in the 1970s, and it has been implicitly used throughout mass communication literature (Brčić & Mihelič, 2015).
In the mid-1970s, there were attempts aimed at refining this model because different researchers, such as Donohue, Tichenor, and Olien, were interested in understanding how to eliminate this knowledge gap, or even to attenuate it (Ray, 2013). To this extent of interest, they started investigating national data related to understanding how to weaken knowledge gaps. Their investigation pointed out that three ways could be used to eliminate the knowledge gap and they include an increased awareness of the intellectual capital gap, decreased levels of social conflict brought about by the issue, and the level of homogeneity in a community (Ray, 2013). From these findings came the developments of the knowledge transfer triad, which is comprised of three main actors – knowledge provider, knowledge recipient, and knowledge supervisor (Brčić & Mihelič, 2015). The knowledge supervisor is always at the center of the knowledge triad because he moderates the interaction between the knowledge provider and recipient. Knowledge is often shared among the three players.
Knowledge Management
Different scholars have described the process of managing knowledge as an initiative by organizations to create, protect and preserve their intellectual property. For example, Simar and Rahmanseresht (2017) say knowledge management involves the creation of information pertaining to an organization with the goal of making it readily available to other employees in an organization. The same authors describe the same concept differently by saying knowledge management involves the design of organizational structures to effectively use its intellectual capital (Simar & Rahmanseresht, 2017).
The principle of knowledge management systems largely stems from the field of “undone science” (Allen & Beech, 2013). This conception situates the production of knowledge within three realms of analysis, which are found within the institutional matrix of the state, organization, and social movements. These social movements are often used by researchers to draw attention to the undeveloped areas of research, which strive to present knowledge gaps as a tenet of “undone science.”
Researchers have pointed out that effective intellectual capital management is not only useful in creating a competitive advantage among organizations, but also in creating a competitive advantage among different countries (Ray, 2013). The opposite is also true because nations that often suffer from lower levels of economic, social, and political development standards often suffer from poor knowledge management standards (Ray, 2013). Figure 2.1 below affirms this situation because it shows that the most developed countries often have a high number of knowledge products.
Figure 2.1. Differences of knowledge across nations
The table above measured the development or advancement of different economies using the growth and development index, which is a measure of the economic macro-environment in different nations (Simar & Rahmanseresht, 2017). How these countries undertake their public governance processes and their levels of technological development were also other measures involved in the analysis of national development. Similarly, total quality management was used as another index to predict the efficiency of how different countries managed their knowledge.
In the organizational context, the efficiency of knowledge management often increases when managers are experiencing the need to know their competitors’ actions and how they are formulating, designing or implementing their business strategies (Meier-Comte, 2012). Contextualized studies have shown the effect of knowledge management systems around the globe. For example, in Iran, researchers contended that the main problem associated with its organizations is a weak knowledge management system (Simar & Rahmanseresht, 2017).
They also argued that these problems have led to the failure of these organizations to manage their knowledge effectively and extract the most value from it (Simar & Rahmanseresht, 2017). Indeed, as Simar and Rahmanseresht (2017) posit, organizations that fail to realize the importance of having this effective strategy for managing their knowledge suffer a high possibility of experiencing serious gaps, based on the creation of knowledge gaps that would occur from their inaction. Relative to this assertion, Simar and Rahmanseresht (2017) add that such organizations could suffer different negative outcomes such as a decline in quality of operations, operational redundancies, and the occurrence of mistakes and errors in the provision of goods and services. The failure to develop proper knowledge management systems also creates the likelihood that an organization’s knowledge resource would be depleted and the time and money involved in creating it would go to waste.
Knowledge Management Approaches
As shown in this chapter, many literatures have highlighted the need for knowledge sharing, and emphasized its importance in the context of today’s complex, and dispersed knowledge environment. Edwards (2016) adds that, in today’s fast –paced society, it is difficult for organizations to rely on their internal competencies or knowledge. Thus, they need to forge alliances with other organizations to maintain their competencies (Edwards, 2016).
Researchers have pointed out that pools of information (or knowledge) often allow the participating organizations to improve their competencies, skills and strategies (Francesca, 2017; Argote, 2012). Here, different studies point out that knowledge is not only accessed, but also internalized by organizations and stored to achieve the aforementioned goals (Francesca, 2017; Argote, 2012). This process is multifaceted. Besides creating a common pool for accessing the knowledge, North and Kumta (2014) say that forging new alliances between companies could also help to foster the generation of new intellectual capital in them. While many studies often highlight the need for knowledge exchange to occur between knowledge providers and knowledge recipients, they may have as well presented knowledge as a tangible resource, such as land, because their analyses mirror this analogy (Francesca, 2017; Argote, 2012). These discussions have happened within the context of understanding knowledge management approaches.
Varied research studies show four types of knowledge management approaches. The first and second ones are the mechanistic and systematic approaches. The last two are the core competency and cultural approaches (Simar & Rahmanseresht, 2017). They are discussed below.
Cultural Approach: The cultural approach to knowledge management traces its origins in the field of change management (Ivey, 2014). This approach looks at knowledge as a management issue. Although technological management is treated as a useful tool for managing this resource, proponents of the cultural approach do not view it as the only instrument for doing so. Instead, they focus more on innovation and creativity (Simar & Rahmanseresht, 2017). Thus, they do not necessarily believe in manipulating explicit resources to manage knowledge effectively.
Knowledge sharing often occurs within an institution or a company because these setups often accommodate employees who work together and share their experiences within the same settings (Ivey, 2014). As Simar and Rahmanseresht (2017) point out, such setups help organizations to share intelligence (freely) among their key employees. There are two key assumptions underlying the cultural approach. One of them is that organizations, which pursue them, are often willing to shake up their organizational cultures to improve employee behaviors. Another one is that organizational behaviors are often changed whenever businesses have exhausted the limits of their technological innovations (Meier-Comte, 2012).
Core Competency Approach: Proponents of the core competency approach say that effective knowledge management systems are often developed when intellectual capital is deemed as a key resource for organizational prosperity (Meier-Comte, 2012). However, in this context, it is pertinent to note a distinction between the ability of organizations to improve their performance and their ability to improve their knowledge management systems. This is not to deny their complementary nature because studies have also shown that they are critical tenets of organizational identities as well (Ivey, 2014). Generally, the core competency approach is a technique for using an organization’s vital knowledge to develop superior goods and services. These core competencies could also include the efficiency through which companies or organizations deliver goods or services to the market and the efficiency through which they do so as well (Simar & Rahmanseresht, 2017). The same competencies allow organizations to develop customized goods/services and optimize their logistics, at the same time. The process of employing qualified employees and disseminating a succinct vision for the organization are also other attributes or organizational efficiency that are attributed to organizational success (Simar & Rahmanseresht, 2017).
The Systematic Approach: The systematic approach involves using predetermined systematic procedures to disseminate information among a selected group of employees. The goal of the systematic approach is to achieve desirable outcomes for an organization and not necessarily to certify or approve the processes involved. This approach comes from the philosophy that considers it impossible to retrieve value from a resource if it is not modeled well enough (Francesca, 2017). Part of this philosophy is reinforced by a belief that most knowledge resources could be explicitly modeled to provide value to organizations and that solutions could be easily found through such a process. Another assumption lies in the possibility of investigating the nature of knowledge management and solving associated problems by simply applying traditional methods of decision-making (Simar & Rahmanseresht, 2017). Although cultural issues are critical in the same analysis, it is vital to appreciate the importance of systematic thinking. Therefore, while changes may occur among employees, organizational policies also need to support the same changes. One last assumption of this model is that technology is useful in solving knowledge management issues (Simar & Rahmanseresht, 2017).
The Mechanistic Approach: The mechanistic approach to knowledge management is enshrined in the philosophy that more could be done using appropriate tools or technology (Bharadwaj, 2015). In other words, more of the same could be done better than is currently done. Underlying this fact is the assumption that access to information is vital to the process of managing intellectual capital and enhances methods of accessing and using information in an organization (Bharadwaj, 2015).
Knowledge Management Models
According to Simar and Rahmanseresht (2017), two models generally represent knowledge management in organizations. They are described below.
First model: The first model highlights the difference in knowledge acquisition between people of a higher and lower socioeconomic status. The general understanding is that people who hail from a lower socioeconomic status often exhibit signs of a poor understanding of policy-relevant information (Simar & Rahmanseresht, 2017). They also show signs of poorly understanding the importance of increasing public knowledge through mass media channels. Figure 2.2 below shows the model of knowledge management gap, as described by Simar and Rahmanseresht (2017).
Figure 2.2. The model of knowledge gap
Two types of explanations could apply to the aforementioned knowledge gap model. One of them is trans-situational, in the sense that the knowledge gap could be merely created from conditions associated with lower socioeconomic levels. One issue that could be associated with this analysis is the probable poor communication skills associated with people of lower socioeconomic status (Jasimuddin, 2012). A situation-specific theory has also been used to explain the same knowledge gap by demonstrating that the gap could exist if people of lower socioeconomic status do not understand the need to acquire incremental information because they deem it as irrelevant or non-functional to their lives (Jasimuddin, 2012). These two schools of thought have been historically used to explain people’s propensity to hold and seek information.
Second model: This model of knowledge management is hinged on establishing a chain of knowledge management. It has been systematically used to explain why some organizations experience management gaps when implementing knowledge management systems. These gaps have been explained in four ways, as described below:
Strategic Perspective: The strategic perspective argues for the need for organizations (or managers) to scan their environments and seek opportunities for development, or improve their competitive advantages (Simar & Rahmanseresht, 2017). The failure to do so creates gaps that explain why some of them are unable to keep up with their competition. These gaps are best explained by the difference in knowledge management and top management outcomes.
Perception Perspectives: The perception perspective often points out the probability that top managers may fail to identify the knowledge required to improve their organizational competitiveness. In this regard, a gap forms between the structures present in an organization to manage its intellectual resources and the knowledge management structures that are actually desired (Birkman International, 2017). This difference may also emerge within an organization’s management structure because some employees may have different perceptions about what the organization needs to do, in terms of its knowledge management systems. The same variance may also emerge from the difference in the perception of managers and employees regarding the need to acquire, or retain, specific knowledge in the organization (Birkman International, 2017).
Planning Perspective: Most managers often plan their organization’s processes, depending on how they understand the company’s internal and external environments. When these managers experience difficulties trying to apply the findings they get from this analysis to the organization, a knowledge management gap emerges (Simar & Rahmanseresht, 2017). The same is true if employees fail to translate this information into tangible value for the organization, especially when they fail to understand the importance of such an analysis.
Implementation Perspective: It is vital for organizations to align their knowledge management systems with their goals. The failure to do so often results in knowledge management gaps. Within this understanding, it is essential for employees to gain the right perceptions and appreciate why such knowledge is good for the organization. Failure to do so would also create knowledge management gaps. Based on the two models defined above, we find that six knowledge gaps emerge. They are highlighted in table 2.1 below.
Table 2.1. Knowledge Gaps
Gap 1
The gap that accrues when top management lacks the capability of implementing knowledge management systems.
Gap 2
The gap that exists when managers’ perceptions of intellectual capital management differs from that which is required
Gap 3
Gap between what top managers have planned in intellectual capital management and what is actually being done by the team mandated to manage the same resources
Gap 4
The gap between the acquired and required knowledge management skills
Gap 5
The difference in the perception of what managers and employees deem important in managing intellectual capital
Gap 6
The gap between what managers perceive as the required knowledge for implementing the process of managing intellectual capital resources and the actual expertise required to do so.
Infrastructure Capabilities to Fill Knowledge Gaps
Filling the knowledge gaps that emerge in different organizations is an art that managers need to learn when designing a strong infrastructure to aid the process. There are three types of infrastructure commonly applied in knowledge management – information technology, knowledge structure, and knowledge culture. These elements of knowledge management interact through dynamic processes that include acquisition process, storage process, dissemination process, and application process. Both the infrastructural and process capabilities lead to organizational knowledge effectiveness. The elements interact as described in Figure 2.3 below.
Figure 2.3. The interaction between knowledge management capabilities and process capabilities
Information technology: As shown from the diagram above, technology is a key infrastructural component of knowledge management. According to Bharadwaj (2015) technology is an important tool for mobilizing the social capital needed to make knowledge sharing systems work. This tool is superior to many others that will be discussed in this paper because it is able to transcend the barriers of space and time that often limit the other types of knowledge sharing platforms. Technology is also superior to other forms of knowledge management infrastructure because it acts as a repository for information (Bharadwaj, 2015). In this way, knowledge can be reliably stored and retrieved at any time. Thus, technology is a tangible resource for knowledge management and has been used by different organizations to support knowledge management initiatives. Bharadwaj (2015) also say that technology has many aspects to it, which include the hardware, software, middle ware and protocols. These elements of technology often facilitate encoding and information exchange in organizations.
Some of the information technology resources available in knowledge management include knowledge-oriented technologies, functional-oriented technologies, specialty-oriented technologies, and social networking technologies (Ray, 2013; Ngeloo, 2017). The most common knowledge-oriented technologies include groupware and web browsers. These resources help companies to process their knowledge management issues and, by extension, improve how they manage their intellectual capital resources (Aanestad & Bratteteig, 2013). Function-oriented technologies could include robotics, desktop computing technologies and such like tools of knowledge management (Aanestad & Bratteteig, 2013). They are mostly aimed at improving operational level practices. Such practices may include production, service delivery, and data processing. Specialty-oriented technologies are often for advanced operational processes in organizations because they are associated with facilitating specialized organizational functions (Bharadwaj, 2015). Typically, such organizations require a high level of knowhow (Ngeloo, 2017). Some of these technologies include computer-aided designs and expert systems software. Lastly, social networking technologies for knowledge management include platforms, such as web 2.0. They are important in facilitating collaborations between team members or enhancing information dissemination within the organization (Aanestad & Bratteteig, 2013).
Most technological tools applied in knowledge management today tend to use one or more tools, such as groupware web browsers, data mining tools and group decision support (among others). However, knowledge portals are the most commonly used tools in different organizations around the world because they have been proved to significantly improve knowledge management systems (Aanestad & Bratteteig, 2013). Groupware is often used to foster collaboration between different knowledge centers in an organization. According to Bharadwaj (2015), information technology tools that foster collaboration include databases and performance management systems. An integrated performance support system and knowledge platforms are other areas of knowledge sharing where collaboration can be fostered (Aanestad & Bratteteig, 2013). Bharadwaj (2015) believe that information technology tools play four key roles that include seeking and identifying related contents, flexibility that help express the contents of the various backgrounds where knowledge is utilized and defining and storing data (among many others).
Based on the above findings, technology emerges as the main resource for developing knowledge management solutions. Indeed, as Bharadwaj (2015) point out, technology acts as the repositories for unstructured information or knowledge exchange. It is also the platform for storing structured data using different tools such as data warehousing and management. Although technology has been touted as being the most useful resource for knowledge management, other researchers have shown that having an effective knowledge structure is also a critical part of developing a reliable infrastructure for knowledge sharing.
Knowledge structure: Bharadwaj (2015) says knowledge structure involves different elements of design that characterize the knowledge management system. They include how organizations have designed their structures of reporting, articulated their communication policies and devised their incentive provision systems (Bharadwaj, 2015). Based on this analysis, the knowledge structure consists of dynamic processes that outline how knowledge should be shared in an organization. Most organizations often have cultures that define the kind of knowledge structures exist in an organization (Kriesi, 2012). For example, most companies categorize their employees into different groups that are defined by their experiences, skills, time, output, or types of clients served (Meier-Comte, 2012). Some of these structural elements of organizational processes are often highlighted to be responsible for poor collaboration within knowledge management teams (Bharadwaj, 2015). For example, bureaucratic processes that exist within organizations often lead to slow decision-making processes and the failure of people to interact freely. Based on such outcomes, knowledge structures form a critical part of the infrastructure needed for knowledge sharing. Studies have also shown that having a supportive knowledge culture also contributes to the quest by organizations to develop strong infrastructures for managing their intellectual capital resources.
Knowledge culture: Knowledge culture is not different from organizational culture, except that it mostly focuses on knowledge as a key strategic resource. Relative to this assertion, Bharadwaj (2015) says that an organizational culture could be used to leverage knowledge management. Similar to the dual nature of organizational culture, a knowledge culture could inhibit or facilitate knowledge sharing within an organization. Indeed, as Bharadwaj (2015) points out, culture often has a significant influence on organizations because it affects the efficiency of knowledge management systems. Its power in doing so mostly stems from the ability of culture to define the values and norms that dictate employee behaviors and practices (Ray, 2013; Ngeloo, 2017). Concisely, the presence of an effective knowledge culture is integral to the success of many organizations that want to excel in knowledge management because it signals the commitment of management to knowledge sharing initiatives (Ray, 2013). In this regard, organizations benefit from a superior decision-making structure.
A sound knowledge culture should support the formal and informal sharing of knowledge. Other researchers add that an effective knowledge management culture should provide a vision that supports knowledge sharing (Ivey, 2014; Bharadwaj, 2015). For example, Bharadwaj (2015) defines an organizational culture that mandates older workers to share their knowledge with younger and less experienced ones. Nonetheless, to realize the benefits of this type of culture, there should be sound leadership at various levels of management (Ivey, 2014). Such leadership acumen should include a strong willingness of management to empower and involve employees at different levels of decision-making. Middle and front level managers have a more important role to play in nurturing such a culture because they are the points of contact between employees and management (Ivey, 2014). Nonetheless, as Bharadwaj (2015) point out, “Leadership is required to develop a desired culture and, ultimately, to develop a knowledge culture as well” (p. 423).
Mechanisms to Fill Knowledge Gaps
Haider and Mariotti (2017) conducted a case study to understand how companies manage their knowledge systems. They established that managers often interacted with technical workers, such as engineers, to fill their knowledge gaps (Haider & Mariotti, 2017). One of the methods used to do so was on-the-job training. Training courses and lectures, plus plant visits and in-house training, were also other methods used by the employees to reduce their knowledge gaps (Haider & Mariotti, 2017). The main salient features that attracted the organization to these methods of knowledge exchange was that they allowed the managers to acquire knowledge that they would have otherwise not have gotten. The arguments made for these unique types of knowledge exchange forums are explained below.
On-the-job training: It was established that employees who were on the job training were better placed in acquiring new knowledge if they worked with more experienced employees through on-the-job training processes (Haider & Mariotti, 2017). Through such a platform, it was easy to learn new information about organizational processes, such as simple information relating to machine operations. Complex processes, such as how to improve organizational practices could also be learned this way. Research studies undertaken by Haider and Mariotti (2017) also showed that this method of knowledge acquisition was the most widely accepted and used by most organizations. In most cases, on the job training often started with a three-month course that was first focused on a language course. It was mainly used in multicultural contexts. Evidence of its application exists in organizations that had both Japanese and English-speaking employees (Haider & Mariotti, 2017). Such a course was not only aimed at imparting language skills, but also educating the employees about the values, philosophies and cultures of each group of workers. In most of these sessions, workers spent time with their colleagues on the factory floor. In one of the assertions made by an employee, it was established that new workers learnt a lot from on-the-job-training because it was happening in real-time, as the job was being done.
In one session that involved training new workers in a heat treatment shop, it was established that the first step of on the job training was educating the workers about all the processes involved (Haider & Mariotti, 2017). In order of processing, employees learnt about each process systematically. For example, if the first process involved jig setting, such was done first. Later, the trainees learnt about how to operate machines, in the order of importance. Generally, the process involved on-the-spot practical training for all the workers. No classes were involved, but new employees often jotted down some notes regarding what they learned. Comprehensively, this example shows that on-the-job training is one practical way organizations have used to fill knowledge gaps. Another one is plant visits and observation, discussed below.
Plant visits and observations: Plant visits involve employees being taken to a company’s plant to observe how operations are being undertaken. These visits could involve a trip to a factory plant or to another company (Aanestad & Bratteteig, 2013). Haider and Mariotti (2017) provide us with another example of how it worked in their organization. Their training process involved understanding how their employees implemented different systems and understood how the processes were relevant to their training course. The main goal of doing so was to make sure the employees understood how operations were being carried out in their respective companies (Haider & Mariotti, 2017).
Other case studies have been cited in several multinational organizations, including Massey Fergusson and AHl which undertake case studies of their own to understand how other organizations perform their organizational processes (Schiedat, 2012). One employee at AHL said that the exercise involved evaluating quality control procedures between the organization and several others (Schiedat, 2012). Comprehensively, this attempt shows how different organizations evaluate their operational processes using a strategy that closely resembles the benchmarking process.
In-house on-the-job training: As insinuated in the name of the concept, the in-house on the job training method involves educating employees about how work is done within the confines of their organization. Therefore, unlike other training methods that include external parties, this method only involves the concerned organization (Haider & Mariotti, 2017). This reason justifies why it is called “in-house training.” However, some literatures present an opposing view to this narrative because they say that knowledge transfer could also involve external stakeholders since outside parties could come to an organization and educate their employees about operational procedures (Haider & Mariotti, 2017). This observation has been reported in an organization called MTL where engineers from another organization (Massey Ferguson) came to share their knowledge about operations processes with employees working for the company (Haider & Mariotti, 2017). Nonetheless, this method does not differ much from the other methods highlighted in this review, in the sense that training and knowledge transfer occurs on-the-job.
In-house training school: Corporations that want to internalize knowledge transfers by developing training schools within an organization have adopted this method (Haider & Mariotti, 2017). Usually, these schools involve the development of curriculums that are solely designed for a specific group of employees or department. Within this internalized knowledge transfer system, it is possible to find selected organizations inviting people from outside the organization to share their knowledge regarding a specific knowledge area (Sloan, 2014). Generally, based on the above assertions, we find that different modes of sharing information within organizations outline different forms of social interaction and knowledge exchange.
There are several cases where organizations have sought the input of third parties in intellectual capital management and in so doing have found enough supporting information to satisfy the needs of all their stakeholders (Haider & Mariotti, 2017). However, there are instances where such knowledge has been transformed to eliminate gaps in intellectual capital management experienced by specific organizations. This outcome was often visible in cases where the knowledge obtained from the external parties was deemed inapplicable to the local context. Usually, when such exchanges and transformation occur, innovation and knowledge creation also suffice. Although the knowledge transformation process happens to fit the knowledge gaps identified in specific organizational processes, it was established that the transformation occurred because employees were the first to note the need for the transformation, relative to the gaps present in their organizations (Haider & Mariotti, 2017).
The inability to transfer knowledge from the partners to the concerned organizations largely arose from differences in working environments. For instance, in the example highlighted above, pitting Japanese and English employees, Haider and Mariotti (2017) found that Japanese products and processes helped to create products that were not directly applicable to the English markets because of several demographic and environmental variations. Therefore, there was a need to introduce changes in the product specification standards. The changes to be made created some sort of knowledge gap in the organizations concerned. Although companies often deliberate on such gaps before engaging in knowledge transfer with other companies, researchers established that employees who were engaged in on-the-job-training often filled such gaps by brainstorming with their counterparts on the work floor (Haider & Mariotti, 2017).
Benefits of Knowledge Sharing
Knowledge sharing has many benefits that accrue at individual and group levels. At an individual level, different benefits of knowledge sharing include (but are not limited to) improved employee attitude, ability to meet deadlines, consistent performance and proactivity (Francesca, 2017). At a group level, there are different benefits associated with knowledge sharing, such as the ability to work well in groups, increased contribution to organizational activities, improved employee attitudes, and increased participation at different levels of organizational performance (Francesca, 2017). These benefits notwithstanding, different researchers have pointed out that knowledge sharing activities can be monitored across different levels of participation, including group discussions, interest groups, learning activities, seminars and conferences (Meier-Comte, 2012).
Factors Influencing Knowledge Sharing in Organizations
Although many factors affect how organizations share knowledge in the workplace environment, researchers have narrowed down these reasons into two main ones – intrapersonal and interpersonal factors (Argote & Fahrenkopf, 2016). To understand the role of these two factors in knowledge sharing, it is first important to understand that knowledge sharing is majorly an interpersonal matter. In other words, an employee’s willingness to share knowledge with another worker is mainly motivated by his or her willingness to do so. At the same time, for knowledge sharing to occur seamlessly, a series of interpersonal actions occurs to determine the level at which knowledge sharing should occur. Alternatively, the employees should have some sort of relationship if knowledge sharing is to happen (Argote & Fahrenkopf, 2016).
In one study undertaken by Edwards (2016), knowledge management systems were evaluated based on their relational and process-based nature. This approach consistently views knowledge as an outcome of people-based interactions. It argues that knowledge is not only created through instructions or demonstration, but through people’s interaction with one another. Indeed, as Horaguchi (2014) points out, knowledge is created this way through a socialization process or through an interactive process with “old timers.” Some researchers refer to this process as the “legitimate peripheral participation” (Argote, 2012). It argues that knowledge management occurs within a context whereby new employees learn about an organization’s processes by interacting with older employees. By doing so, a transition occurs, where newcomers (employees) move from a stage of peripheral state to a new one where they are full participants of the “community.”
In a recent work by Styhre (2013), the concept of participation has been investigated in-depth. Researchers have viewed it as more than only participating in occupational community, but also a process that easily generates new intellectual resources (Argote, 2012). Face-to-face interactions are usually the only mode of communication that leads to the development of new intellectual capital resources. Relative to this discussion, Styhre (2013) says, by communicating with different people, there is an opportunity to create a common sense of understanding regarding what should be done, relative to the need for knowledge management. Though this statement, Styhre (2013) also says that knowledge may be shared through different forms such as storytelling, where older employees teach new ones how they have been doing their jobs. Evidence exists of how this method has been used in different organizations, including Xerox, where older employees shared knowledge with newer employers about their jobs. Relative to such an example, Jasimuddin (2012) says that such social interactions often provide a fertile ground for the creation of a common identity within an organization. This common identity could also be regarded as a tool, which further motivates employees to share experiences. Styhre (2013) reported this advantage in Xerox where most of the technicians shared a strong work context that nurtured a common understanding among them that allowed them to share knowledge freely. Jasimuddin (2012) argues that this sense of community if nurtured well within the organizational context easily creates a high sense of trust among the members. Furthermore, Jasimuddin (2012) adds that it creates shared behavioral norms, reciprocity and mutual respect among most levels of employee hierarchies.
Organizations that are positioned to achieve this level of success are able to create a high social capital that researchers have linked to effective social management systems. In line with this reasoning, recent studies have reorganized the social nature of knowledge by pointing out that the management of intellectual capital is an ongoing process that involves different actors and that could adopt a provisional or virtual nature, depending on the kind of knowledge management systems adopted by a company (Styhre, 2013). Based on the above statement, researchers understand knowledge to be better informed by action more than anything else. Similarly, they point out that the concept should be conceived in terms of knowing.
At a dyadic level, knowledge sharing should occur when two factors are present – communication and collaboration (Ray, 2013). The main assumption underlying this statement is that the closer two employees are, or the stronger their working relationship, the more likely knowledge sharing would occur. Again, two predictors are considered to be important in determining the success of knowledge sharing initiatives – willingness and motivation to share intellectual capital resources. Experts highlight the importance of understanding them in detail, as discussed below.
Willingness: Many research studies have highlighted one significant assumption in knowledge sharing that is associated with the willingness to share information. This assumption states, “The willingness to share information has a positive impact on knowledge sharing” (Simar & Rahmanseresht, 2017, p. 3). The willingness of employees to share information could be loosely deemed to refer to the preparedness of an employee to grant another access to their intellectual capital. This willingness would suffice in contexts where employees have a positive attitude towards one another (Argote & Fahrenkopf, 2016). Based on this finding, knowledge sharing appears to be a significantly individualistic factor. According to Argote (2012), organizations should understand the importance of an employee’s will to share information because this basis helps them to increase the efficiency of knowledge sharing.
Motivation: As highlighted in this chapter, intergenerational differences in the workplace have made it increasingly difficult for managers to maintain high levels of motivation among their workers. According to Ray (2013), trust is central in motivating employees to share information. Given the importance of knowledge sharing, it is not surprising that many observers agree that the motivation to share information significantly affects the efficiency of the process (Argote, 2012). Extrinsic and intrinsic factors are important in maintaining the desired level of motivation to support effective knowledge sharing initiatives. Extrinsic factors refer to the understanding by some employees that the realization of some independent factor would boost their motivation to share knowledge. Comparatively, intrinsic factors refer to the self-determination of employees to gain knowledge, relative to any external factors, as one of the greatest influences of the motivation to share knowledge. In this regard, intrinsic factors are bound to boost knowledge sharing activities. Here, motivation also emerges as a moderating variable that would affect the relationship between network positioning and the knowledge sharing process (Ray, 2013).
Limitations of Organizational Capability to Manage Intellectual Capital Resources
Most organizations that implement knowledge management systems often experience gaps in their implementation strategies that stem from the failure of existing management systems to align with existing organizational cultures and policies (Meier-Comte, 2012). The problems they encounter are diverse, but Simar and Rahmanseresht (2017) say one of the most common ones is the differences in perception between those who design the knowledge management systems and those who are supposed to follow or protect them. Simar and Rahmanseresht (2017) observe this issue as a common problem by saying that the isolationist way in which knowledge management designers conducts their work makes it difficult for them to be objective because they tend to design them according to personal beliefs and perceptions. Another problem reported by some observers is the tendency of these knowledge management systems to be annoying and upsetting to most users, based on their designs, which are often regarded as having unrealistic capabilities (Aanestad & Bratteteig, 2013). Simar and Rahmanseresht (2017) say another limitation of knowledge management systems is the failure to align the same with business needs. This problem makes it difficult for the knowledge management systems to create value for the associated organizations.
Lastly, researchers have also pointed out that one weakness of knowledge management systems is the failure of organizations to allocate the right resources to the systems and to assign the right number of employees to implement the system (Aanestad & Bratteteig, 2013). Despite these challenges, organizations have not shied away from giving knowledge management systems the importance they deserve because they understand that in today’s knowledge-centered global economy, the success of organizations depends on the implementation of effective knowledge management systems (Aanestad & Bratteteig, 2013). This fact is further reinforced by studies done by Simar and Rahmanseresht (2017) in 25 multinational organizations, which showed that most senior managers acknowledged the loss of credible and reliable organizational processes because of a poor management of their intellectual capital.
Common Barriers to Knowledge Transfer
Some of the most common barriers to knowledge transfer include inadequate awareness, inadequate transfer capacity, inadequate pre-existing relationships, and inadequate innovation (Schiedat, 2012). The lack of awareness regarding intellectual capital exchange is highlighted by researchers, such as the ITM Platform (2017), who point out that if employees do not understand the need for the same in the first place, they would similarly be unaware of their need to transfer the same knowledge to other employees. Awareness also includes identifying knowledge providers and their recipients and later matching them up to identify how they need to pair up. Such links could be identified using knowledge maps and such like tools.
Researchers point out that using such tools is pertinent for the efficient formulation of knowledge transfer programs and the increase of people’s awareness regarding the same because they help organizations to could help provide an efficient and effective approach to addressing complex knowledge management problems (Aanestad & Bratteteig, 2013). The failure to have such tools simply means that organizations would have trouble finding a solution to a given problem or conflict associated with knowledge transfer. Such problems often occur because knowledge transfer roles would be assigned to people who do not understand the process, or are unaware about how to conduct such an exercise. Theorists who have investigated this issue have argued that organizations could be more effective if they increase employee awareness regarding the need for knowledge transfers because this is the first step towards the integration of knowledge in the organization (ITM Platform, 2017).
Inadequate pre-existing relationships between knowledge providers and knowledge recipients has also been voiced as another challenge affecting knowledge transfer because such relationships act as the vein through which knowledge flows in the organization (ITM Platform, 2017). Without such an infrastructure, it is difficult for knowledge transfer to occur. This barrier is closely associated with an inadequate capacity to transfer knowledge within organizations because it also points to the need to have a proper infrastructure for knowledge transfer (Francesca, 2017). The lack of a proper infrastructure could easily lead to the loss of knowledge between different phases of firm operations. For example, studies have shown that most organizations, which depend on critical organizational processes for sustenance often, experience knowledge losses if they do not have a proper infrastructure for the same because their current designs and uses of equipment often depend on the passage of knowledge across different operational phases (ITM Platform, 2017). Thus, intellectual capital losses occur when knowledge is transmitted inadequately.
Lastly, inadequate innovation has also been highlighted as another knowledge transfer barrier in some organizations (Meier-Comte, 2012). This barrier often leads to inadequate knowledge integration, which could lead to the inability of organizations to solve knowledge transfer problems that could incapacitate a company’s operations (ITM Platform, 2017). This problem also limits an organization’s capacity to transform its intellectual capital resources into something greater than the value it would ordinarily create for the organization (because innovation would aid managers to correctly couple different pieces of information for something greater) (Argote, 2012). As the ITM Platform (2017) points out, many organizations often lack that one key that would appropriately fit with diverse centers of knowledge. Thus, there is always a risk that one piece of a puzzle would fit incorrectly and interfere with the general knowledge transfer objective. Through this analysis, researchers have always highlighted the importance of fostering innovation in the organization to better manage and exploit multifunctional knowledge (Meier-Comte, 2012).
failure to align knowledge gaps with strategy. One of the most notable challenges organizations have faced when trying to fill their knowledge gaps is the difficulty of matching the knowledge gap with the organization’s attributes. Soliman (2015) identifies this problem in his book titled “From Knowledge Management to Learning Organization to Innovation” which presupposes that, although knowledge is transferable, the process should be cognizant of the fact that it needs to align with an organization’s attributes. However, doing so has been problematic for most companies that pride themselves on being innovative. Part of the problem is specific risks, which make it difficult for organizations to realize how knowledge gaps could impede or facilitate their organizational processes. As Horaguchi (2014) observes, some of these risks could be emerging from the failure of organizations to identify knowledge mismatches. Soliman (2015), who says the higher the level of involvement of individuals and functional units in the knowledge transfer process, the higher the possibility that a mismatch would occur further compounds this risk.
Brčić and Mihelič (2015) further explored the link between knowledge and strategy by saying that creating an alignment between the two is often a difficult and complex process. However, this process is critical to the success of organizations that want to extract value from their knowledge management systems. This finding may have triggered a greater interest in understanding how unassessed intellectual capital could aid companies to improve their strategic management systems Relative to this assertion, Soliman (2015) purported that, by virtue of trying to align their knowledge management systems with their business strategies; companies were overlooking existing knowledge management gaps. By extension, this action also meant that they were overlooking existing strategic gaps. Soliman (2015) failed to note that adverse organizational outcomes were directly linked to this problem. Although several authors have highlighted the need to assess intellectual capital when developing or implementing business strategies, the process may be inhibited by the existence of defective knowledge, or knowledge that cannot be directly applied to organizational processes (Brčić & Mihelič, 2015).
History is littered with several organizations and institutions that faced imminent collapse because of their failure to understand or appreciate the importance and meaning of knowledge transfers. These examples cut across different fields, including finance, manufacturing, banking and the likes. For example, in one case cited by the Chartered Management Institute (2017), Barings Bank (based in London) reported a significant decline in its performance because of knowledge gaps within its employee pool. The bank mostly suffered from a cultural problem that made it difficult for the organization to detect knowledge gaps in its operations (Chartered Management Institute, 2017). This mistake was further compounded by strategic weaknesses in the organization’s operational plans because it suffered from overconfidence and the lack of a timely system that would relay information to managers, in real time, regarding the bank’s activities (Chartered Management Institute, 2017).
Two groups of traders operated at Barings Bank. One of them was a group from Barings Securities and another one was from Barings Brothers. Both sets of employees had significant cultural differences (Chartered Management Institute, 2017). One effect that emerged from this difference was the focus by some of the managers in the organization to protect their departmental operations, as opposed to making sure there was synergy in the organization that would allow the bank to work as a whole. In 1993, this clash came to a simmering end when there were several employee transfers in the organization that left some departmental operations significantly understaffed (Chartered Management Institute, 2017). This problem was highlighted in an article by “Euromoney,” which showed that significant derivative knowledge was lost in the organization, which significantly affected the operations of derivative trading that mostly sustained most of its Asian operations (Chartered Management Institute, 2017). To explain this problem further, the Chartered Management Institute (2017) said that the bank’s management abdicated its duty to oversee the quality of actions being taken in the institution and, by extension, created a fertile ground for the bank to collapse.
Kidder Peabody is a trading company that failed to notice its knowledge gaps and suffered a similar fate as Barings Bank. One of the company’s employees (Joe Jett) significantly inflated the company’s profits by up to $350 million, over a period of two years (Tofanelli, 2012). However, the issue was undetected by the company’s management because there was an existing knowledge transfer structure that would have shown that the employee had a string of failures prior to joining the organization. The company’s management made more mistakes by allocating more capital to Jeff without understanding how he made his profits (Tofanelli, 2012). An audit on the issue showed that Kidder Peabody was not keen on testing some of the knowledge used by Jeff because they were blinded by his success (Tofanelli, 2012). The knowledge gap in the organization manifested the need for employees to share information because as it was, Jeff was unwilling to do so. This example highlighted one flawed mistake in many trading firms that emphasized individual performance at the expense of group performance.
Although the above-mentioned examples are robust and explain the effects of knowledge management failures in organizations, there is a gap in literature that has failed to show the effects of generational differences on knowledge management. This gap exists despite the fact that many examples of knowledge sharing gaps today occur within the context of appreciating the contribution of different groups of employees and their roles in the organization (which is the same as the case highlighted in this study). The section below outlines different generational cohorts in the workplace that are responsible for these gaps.
Generational Cohorts in the Workplace
Generational cohorts in an organization refer to the categorization of employees into different groups, based on when they were born and the kind of historical events associated with their upbringing. Typically, these experiences would influence the beliefs and values that would affect their values and beliefs about work (Shaw, 2013). A variety of factors could contribute to these beliefs and values. Some of them include influences from the media, social and economic events, parental influences, and peer influences (Saleh, 2012; Shaw, 2013). Based on the collective factors, each employee group often manifests different behaviors in the workplace. Their differences translate to knowledge gaps. As Saleh (2012) points out, the general reason for the knowledge gap that exists in many organizations is that different cohorts of employees have acquired different types of knowledge, depending on their life and organizational experiences. It is difficult to delink employee experience and age because the older the employees, the more experience they gather at work.
The Strauss-Howe generational theory is perhaps the most vivid theoretical points of reference to explain intergenerational issues associated with knowledge transfer and management. The theory posits that generational cohorts in the workplace are brought about by four different events (“turnings”) (Lyons, 2012). The events are “the high,” “the awakening,” “the crisis” and “the unraveling.” These four turning points are briefly discussed below.
The High: This turning refers to periods where individualistic attitudes are suppressed by the greater and collective effort by employees to subscribe to a higher purpose of the organization’s goals. In other words, employees are often clear about the direction they would take as a collective group and are motivated to do so (Lyons, 2012).
The Awakening: This turning simply refers to a period where people feel the need to uphold personal and spiritual autonomy over anything else in the organization. It is often heralded by a sense of social tire where the drive for self-awareness supersedes all other aspirations of workers (Lyons, 2012).
The Unraveling: This turning point is synonymously associated with a period of low confidence in organizations because they are often deemed weak. Instances where the unraveling occurs are also characterized by a high sense of individualism by employees. However, it often later crystallizes to the atomization of an organization’s purpose (Lyons, 2012).
The Crisis: This last turning stage is often associated with war, which is permitted through people’s resolve to manage a crisis. Afterwards, restructuring can take place when people build the organization again (Lyons, 2012). Although the above turnings have largely been used to explain organization phenomena, it is important to point out that the development of the Strauss-Howe generational theory has borrowed heavily from the American organizational experience. Nonetheless, by virtue of understanding the value systems of different employee groups, universally, researchers have said there are three main types of employee groups– baby boomers, Millennials, and generation X. They are assumed to symbolize three blocks of employees that characterize most knowledge gaps in current organizations around the world. They are further explored below.
Baby Boomers: The baby boomer generation was typically born between 1945 and 1965. Their upbringing was ordinarily associated with economic prosperity and suburban affluence (Saleh, 2012; Shaw, 2013). Studies also show that they grew up in strong nuclear families and valued traditional family values (Birkman International, 2017). For example, most of their mothers were stay-at-home mums and worked hard to be homemakers, as opposed to becoming breadwinners. Currently, people in this generation are considered leaders in the workplace. The youngest employee within this generational group is estimated to be 52 years old (Birkman International, 2017).
Generation X: This generation was born between 1965 and 1980 (Tofanelli, 2012). Most of those who grew up within this generation group were latch-kids and their mothers often went out to look for work, as opposed to being homemakers and depending on their husbands (Tofanelli, 2012). Consequently, they were exposed to parents who were resilient and independent. It is similarly common to find most children who grew up in such sort of setups to value independence. In some literatures, this generation is often overlooked because they are sandwiched between two large generations – baby boomers and millennials (Levitt, 2012).
Millennials: Millennials are an employee generation birthed from the early 1980s to late 1990s. In some circles, they are also known as “Generation Y” (Birkman International, 2017). This group of employees is regarded as having grown up in the most child-centric times of human history (Birkman International, 2017). Consequently, they tend to appear more confident and at times cockier than their older counterparts do. This attribute may have stemmed from the high expectations put on them by their parents. Some studies point out that this group of employees is the largest in the global workforce and its dominance is still growing (Tofanelli, 2012).
The above classifications of employee generations are important to the study of knowledge management because each group of workers has different behaviors and values that affect how they perform their duties in the workplace. For example, different research studies have pointed out how the baby boomer generation is unique from the other types of employee groups highlighted above because they tend to value work relationships more than anything else (Levitt, 2012). Comparatively, generation X and the millennials tend to value the work environment more than any other factor of production (Birkman International, 2017). Conversely, some key attributes that would influence their job satisfaction levels include decision-making opportunities, career development opportunities, autonomy at work and such like job-related factors (Tofanelli, 2012). Although each generation has its unique strengths, some of the main issues associated with their weaknesses include discontentment and disrespect at work (Levitt, 2012). These problems often occur because of misunderstandings and the failure of one employee cohort to understand the point of view of another. For example, the millennial group may fail to understand the intense work regimen that the baby boomer generation is accustomed to. Similarly, a top-down hierarchical organizational structure (which is preferred by the baby boomer generation) may irritate most generation X workers (Tofanelli, 2012). Independent of these factors, Shaw (2013) adds that different generations also have their unique communication styles that affect team cohesion in the workplace. Although there are many stereotypes about millennials in the workforce, the collective personality that defines them is more similar to baby boomers than previously thought (Simar & Rahmanseresht, 2017). However, accepting such facts has been difficult for managers and researchers alike. Nonetheless, managers that bother to understand these perceived differences and create an environment where they are able to nurture the skills and competencies of both cohorts of employees are likely to succeed through organizational success, compared to those who do not (Simar & Rahmanseresht, 2017).
Generally, the main message that researchers convey from this analysis is that workplaces are becoming more diverse by the day and the possibility of an older employee reporting to a younger one is as real as the possibility that an older employee would have to look up to a younger colleague to gain knowledge regarding a particular operational process. Argote & Fahrenkopf (2016) say that companies need to develop effective knowledge management systems that would allow older employees to transfer their knowledge to younger workers if they want to remain truly competitive. A greater point of concern for most organizations is the immense wealth of knowledge held by the baby boomer generation who are now retiring from the workplace (Saleh, 2012; Shaw, 2013). Companies that recognize this problem are shifting their strategies to support a framework that allows intergeneration knowledge transfers. While different organizations are starting to embrace the importance of developing effective knowledge management strategies, many researchers agree that these management systems should appeal to the need to have a multigenerational workforce.
Why all the Talk about Generations Anyway?
Although researchers have pointed out significant differences between how generations think, work and the challenges that these two sets of ideologies have on the organizational performance, this issue is more than a trendy topic. As the Birkman International (2017) points out, it has a significant impact on organizational and team performance. This is why organizations, which have an effective knowledge management system, seem to tower over their competitors (Tofanelli, 2012). Understanding the secrets that keep older and younger employees engaged in the workplace is among the most sought after skills. Indeed, the cost of having disengaged employees is dire to organizations because research points out that, companies lose up to $550 billion annually because of this problem (Tofanelli, 2012). Having engaged employees in the workplace has been largely associated with financial stability and high levels of employee motivation (Spiegel, 2013). A high level of employee satisfaction has also been associated with the same outcome because research studies point out that when employees feel they have an equal opportunity to succeed, they tend to be more motivated to do their work (Spiegel, 2013). Additionally, the importance of understanding how different cohorts of employees could work together is critical in today’s society because studies report that 1 out of 3 employees in the global workforce today are millennials (Simar & Rahmanseresht, 2017). At the beginning of 2015, researchers estimated that this population group surpassed the number of baby boomer workers in the global workforce (Levitt, 2012). In America, millennials are considered the most diverse employee group yet (Levitt, 2012). This finding stems from evidence that shows that up to 44% of this employee group are minorities (Levitt, 2012). This rate of diversity not only highlights the importance of appreciating or acknowledging the need to motivate employees, but also forces us to appreciate the diversity that exists in the global workforce today.
Summary
Although the findings highlighted in this literature review explain the main concepts of knowledge management and its antecedents, a gap in literature has emerged and it has failed to show the effects of generational differences on knowledge management. This gap exists despite the fact that many knowledge-sharing gaps today occur because of generational differences in the workplace (which is the same as the case highlighted in this study). This study would contribute towards the development of this literature through the Saudi Aramco case study.
Research Methodology
Introduction
This chapter outlines the research strategies that were used in meeting not only the research objectives, but also answering the research questions after evaluating factors that affect knowledge transfer performance in Saudi Aramco. Key aspects of the strategies that would be explored in this paper include the research approach, research design, data collection strategy, data analysis strategy, and ethical considerations. The quantitative approach was used in developing the questionnaire as a tool based on 5-points Likert-scale to test the conceptual model, by allowing the research participants to give a range of views about the research questions, stretching from “strongly agree,” “agree,” “neutral,” “disagree,” to “strongly disagree.”. To collect information from the respondents, a simple questionnaire was issued to the respondents to collect information about the research issue as highlighted in appendix 1. Moreover, this chapter presents the research method, research strategy, research framework, research variables, research hypotheses, research instruments, research population and sample, data collection, validity and reliability of instruments, statistical analysis tools, and the summary.
Research Method
There are three main research techniques in academic studies. They include the mono method, mixed method and multimethod (Crowther & Lancaster, 2012). The mono-method typically involves the use of only one research choice – either qualitative or quantitative. Comparatively, the mixed methods approach combines both the qualitative and quantitative techniques. Lastly, the multi-method approach uses two qualitative research choices (Crowther & Lancaster, 2012). This study adopts the mixed-method approach because it is centered on the use of the qualitative and quantitative research methods. The mixed methods approach is applicable to this study because it allows researchers to get comprehensive data that could be analyzed using graphs, narratives and even pictures (Crowther & Lancaster, 2012). By using the mixed methods technique, it would also be possible to get insights about the research issues that could otherwise have been missed if only one method was used.
Research Strategy
Crowther and Lancaster (2012) say there are three main types of research strategies, which include exploratory, descriptive, and explanatory studies. The exploratory study seeks to gather new insights regarding a research phenomenon. In other words, it is used to assess a new topic in a new light. Exploratory researches are usually conducted in three major ways that include searching the academic literature, interviewing experts in the subject, and conducting interviews (McNabb, 2015). Comparatively, descriptive research is used to describe a phenomenon, event or situation. The most common way of conducting descriptive research are sampling, interviews, reanalysis of secondary data, and questionnaire surveys (Crowther & Lancaster, 2012).
The exploratory technique is selected for this study. An explanatory review often involves an analysis of an event or research problem with the goal of explaining different variables that underlie the same investigation (Crowther & Lancaster 2012). Some of the most common methods used in exploratory research include case studies, observation, historical analysis, attitude surveys, and statistical surveys (Crowther & Lancaster, 2012).
The questionnaire was designed with the following considerations:
The survey had to be simple to make the employees comprehend what information was sought from them
They have to be easy to fill so that the process does not take a long time because employees would be taking time off their work schedules to complete them
The surveys would have to be completed by different groups of employees and from different age groups and works stations to make the responses inclusive
The survey questions have to be written in easy language to make all the employees understand the questions.
Research Framework
The research framework consists of a conceptual model that strives to understand the relationship between the independent variables and dependent variables. The main dimensions analyzed include, critical activities, risk of loss, communications skills, culture, and demographic information (gender, age, nationality, educational level, work field, work experience, job position, and training). They have been added to this model to investigate the effect of that information on the knowledge transfer. In addition, this is in detail shown in Figure 3.1
Figure 3.1: Conceptual framework
Research Variables
The variables of the study are classified into two types: dependent and independent. The only dependent variable of the conceptual model is knowledge transfer and the independent variables are: critical activities risk of loss, communication skills, culture, and demographic information (gender, age, nationality, educational level, work field, work experience, job position, and training).
Research Hypotheses
Based on the research questions of this study the hypotheses were formulated as listed below:
H1: Critical activities have an effect on Knowledge Transfer.
H2: Risk of loss has an effect on Knowledge Transfer.
H3: Communication skills have an effect on Knowledge Transfer.
H4: Culture has an effect on Knowledge Transfer
H5: Demographic information affects knowledge transfer
Research Instruments
The current study depends on the conceptual model that informs the development of the questionnaire as a tool which allows the research participants to give a range of views about the research questions, stretching from “strongly agree,” “agree,” “neutral,” “disagree,” to “strongly disagree.” To collect information from the respondents, a simple questionnaire will be issued to collect information about the research issue as highlighted in appendix 1. The questionnaire contains demographic information and number of statements that have been formulated according to the study objectives. Table (3.1) lists the dimension names and the number of statements for each dimension.
Table 3.1: The questionnaires dimensions and the number of statements
Dimensions
No. of statements
Dimension 1
Critical activities
5
Dimension 2
Risk of loss
3
Dimension 3
Communication skills
6
Dimension 4
Culture
6
Dimension 5
Knowledge Transfer
5
Total
25
The questionnaire consists of two parts. The first part is investigates employees’ demographic information (gender, age, nationality, educational level, work field, work experience, job position, and training). The informants were asked seven general questions, Which skills have they used in knowledge transfer (KT) activities during the past 12 months, do they have an experience in knowledge transfers or not, does their organization experience KT methods, have they practiced KT processes with regard to the job they are working at, do they know who can help in solving problems in the organization, is their mentor performing his duties in a proper way, and do they go to their supervisor whenever they face a problem. The second part of the questionnaire consist of (25) statements distributed on five dimensions, and they are; critical activities (which includes (5) statements), risk of loss (which includes (3) statements), communication skills (which includes (6) statements), culture (which includes (6) statements), and knowledge transfer (which includes (5) statements). Five intervals of scale were used to interpret the respondents’ degree of agreement. The following formula was used to calculate the score interval;
Score interval = (Maximum score – Minimum score) / Number of levels
= 5 – 1 / 5 = 0.8
The following rating scale was used to measure the degree of agreement:
Table 3.2: Rating scale
1 – 1.8
1.81 – 2.6
2.6 – 3.4
3.41 – 4.2
4.21 – 5
Strongly Disagree (SD)
Disagree (D)
Neutral (N)
Agree (A)
Strongly Agree (SA)
The correlation between the dimensions was calculated to measure the direction degree of relation that ranged between -1 and +1. The positive values mean positive relationship, while the negative values mean a negative relationship. According to Gertsman (2003), the scale that measures the strength of correlation is as highlighted in Table 3.3 below.
Table 3.3: Strength of correlation scale
0 to ±0.3
±0.31 to ±0.7
±0.71 to ±1
Weak
Moderate
Strong
Research Population and Sample
A sampling method refers to how employees would be recruited to participate in the study. The simple random sampling method was used to recruit the research participants. The method works by giving respondents an equal chance of participating in the study. The simple random sampling method was in the study because the researcher wanted to get unbiased and random opinions from the employees of Saudi Aramco regarding their knowledge transfer methods. The population of three departments in Aramco such as Accounting, Marketing, and HR are 700 (Saudi Aramco Inc., 2015). The sample size were calculated with a confidence level of 0.95 and a marginal error 0.05 by using (www.raosoft.com/samplesize). Here, the minimum recommended sample size is (249).
Data Collection
Data collection refers to the important step of gathering and analyzing the required information (Gupta, 2013). The survey highlighted in this study involved the collection of data from a group of respondents in a structured manner. The data may be collected using different techniques, or data collection methods, including questionnaires, structured interviews, or semi-structured interviews. As mentioned in chapter 1, the statistical surveys approach was used in this study. This research technique is intended to provide adequate insights regarding knowledge transfer in a real-life organizational setting.
Table (3.4) below shows the respondent rate for the questionnaire. The data collection tool was distributed virtually to the intended responses at Saudi Aramco in three main departments, accounting, marketing, and HR. They were also distributed randomly in each of the three departments. The number of responses received was 370 questionnaires which have been analyzed and the correct respondents’ rate is 91.6% as highlighted in Table 3.4 below.
Table 3.4: Respondent rate for the questionnaire
No. of distributed
No. of rejected respondents’
No. of correct respondents’
Correct respondents’ rate %
370
31
339
91.6
Validity and Reliability of Instruments
The ethical considerations that could affect this study largely refer to practices of good conduct by the researcher. Some of the main ethical issues that were relevant to the study are discussed below:
Informed Consent: All the respondents who participated in the study did so voluntarily. This means that they were not coerced or paid to participate in the study.
Privacy and Confidentiality: The identity of the research participants was not revealed in the research. This stipulation means that there were no names of the respondents attached to their views (Wiles, 2012). The aim of doing so was to protect the privacy of the respondents.
Data Management: All the findings obtained from the research participants were safely stored in a computer and secured with a password. Only the researcher had permission to access the data. After completing the study, the information would be destroyed.
The questionnaire was evaluated and reviewed by qualified employees and supervisors who are in-charge of the knowledge transfer mechanism in Saudi Aramco to determine the validity as outlined in the appendix (B). To test the reliability of the questionnaire, Cronbach’s alpha were used. Table (3.5) shows the result of testing the reliability by Cronbach’s alpha.
Table 3.5: Cronbach’s alpha test for study Dimensions
Dimensions
Statements
Cronbach’s Alpha
Reliability
Critical activities
S1 – S5
0.883**
0.937
Risk of loss
S6 – S8
0.646**
Communication skills
S9 – S14
0.765**
Culture
S15 – S20
0.903**
Knowledge Transfer
S21 – S25
0.818**
The table shows the output of alpha coefficient for the questionnaire dimensions, according to Wang (2007), the dimension with alpha coefficients values of 0.6 and above are considered reliable. The values are all above 0.6, which indicate that the internal consistencies of the items have good internal reliability. The Cronbach’s alpha was ranging from 0.619 to 0.917 with overall reliability of 0.937. This means that the reliability of the questionnaire is acceptable for analysis.
Statistical Analysis Tools
Google form was used to present, manipulate, and process the data. The pieces of information obtained from the surveys were also analyzed by using the SPSS technique – version 23. This software is a window-based method that was used to analyze the quantitative findings that would be obtained from the respondents using different tools available in it. The SPSS technique was chosen for this study because the research process involved the analysis of large amounts of data that were otherwise difficult to analyze manually. Additionally, the data collected were analyzed using Microsoft Excel 2013. Descriptive statistical methods, such as tables and graphs were employed. Additionally, statistical data were calculated in several measures such as averages, standard of deviation, frequencies and percentages, and the degree of agreement. Pearson, Spearman, and liner regression were also used to measure the correlations between dimensions. Moreover, T-test and one-way ANOVA techniques were used to verify the effect of demographic variables on the declared dimensions.
Data Analysis and Discussion
This chapter contains information pertaining to the analysis of findings about how to bridge the knowledge gap at Saudi Aramco. It contains a section that discusses the statistical findings for the knowledge management practices in the organization and the demographic data relating to the informants. The data collected from the surveys are also analyzed here to test the hypotheses and present information that will be used in the analysis of the research questions in subsequent chapters. However, before reviewing the findings of the research questions, it is important to analyze first the demographic data characterizing the research respondents below.
Demographic Data
Gender
Gender was the first demographic variable investigated in the research data. In total, 370 respondents took part in the study. About 79.5% of them were male, while 20.5% of them were female. These statistics are highlighted in Table 4.1 below.
Table 4.1. Gender Distribution
Gender
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.0
76
20.5
20.5
20.5
2.0
294
79.5
79.5
100.0
Total
370
100.0
100.0
The same findings depicted above are reflected in the pie chart below as Figure 4.1. It shows that there were more male respondents compared to female participants who took part in the study by a factor of 4.
Figure 4.1. Gender Distribution
These respondents were also classified according to age as depicted below.
Age
The respondents’ ages were highlighted as the second demographic variable in the analysis. According to Table 3.2 below, there were four categories of age. The first one was comprised of employees who were below 30 years, the second one was constituted of people who were between 30 and 40 years, the third one included employees who were between 40 and 50 years and lastly those who were between 50 and 60 years. A majority of respondents belonged to the first group (less than 30 years). This cluster of employees comprised 42.2% of the respondents. The second largest age group was made up of employees who were between 30 and 40 years (37.6%), followed by those who were between 40 and 50 years (13.8%) and lastly those who were between 50 and 60 years (6.5%). This analysis shows that most of the employees were young as opposed to old. Table 4.2 below summarizes this data.
Table 4.2. Age Distribution
Age
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.0
156
42.2
42.2
42.2
2.0
139
37.6
37.6
79.7
3.0
51
13.8
13.8
93.5
4.0
24
6.5
6.5
100.0
Total
370
100.0
100.0
The same findings highlighted above are also reflected in the pie chart below, which appears as Figure 4.2.
Figure 4.2: Age Distribution
After the analysis of age, nationality was the third demographic variable evaluated. The findings appear below.
Nationality
The nationality variable was categorized into four key segments: Saudi, North American/Europe, Arabic and “others.” The majority of the respondents were Saudi nationals. They comprised 98.1% of the sample. The other nationalities were less than 1% of the population. These findings are summarized in Table 4.3 below.
Table 4.3. Distribution of Nationalities
Nationality
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.0
363
98.1
98.1
98.1
2.0
3
.8
.8
98.9
3.0
2
.5
.5
99.5
4.0
2
.5
.5
100.0
Total
370
100.0
100.0
The above findings are also reflected in the pie chart below, which appears as Figure 4.3.
Figure 4.3. Distribution of Nationalities
The fourth demographic variable analyzed in this paper was education level and the findings are highlighted below.
Education level
The respondents were categorized into four education groups: high school (or less), diploma, bachelor, and graduate studies. Most of the respondents who took part in the study had a bachelor’s degree. Comparatively, the second largest group of respondents had finished their graduate studies and they comprised 18.1% of the total sample. Informants who had high school (or less) and diploma education levels were both 17% of the total sample. Table 4.4 below summarizes the findings.
Table 4.4. Education Levels
Educational Level
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.0
63
17.0
17.0
17.0
2.0
65
17.6
17.6
34.6
3.0
175
47.3
47.3
81.9
4.0
67
18.1
18.1
100.0
Total
370
100.0
100.0
The statistics mentioned above are also graphically represented in the pie chart below, which is hereby highlighted as Figure 4.4.
Figure 4.4: Education Levels
After evaluating the education levels of the informants, the other demographic variable investigated in the study was “work field” and the results are depicted below.
Work field
The fifth demographic variable analyzed in the study was “work field.” This characteristic had three tenets: job group, work experience, and work field. Under the work field category, the respondents indicated that they worked in eight fields, which included accounting, management, economics, marketing, finance, MIS/IT, HR training and “others.” Most of the employees sampled worked in the marketing department. They accounted for about 49.5% of the total sample. The smallest groups of informants worked either in the economics department or in the “others” category. Table 4.5 below summarizes the findings.
Table 4.5. Work Field Distribution
Work Field
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.0
44
11.9
11.9
11.9
2.0
56
15.1
15.1
27.0
3.0
3
.8
.8
27.8
4.0
3
.8
.8
28.6
5.0
14
3.8
3.8
32.4
6.0
30
8.1
8.1
40.5
7.0
37
10.0
10.0
50.5
8.0
183
49.5
49.5
100.0
Total
370
100.0
100.0
The above findings are also reflected in the pie chart below, which appears as Figure 4.5.
Figure 4.5. Work Field Distribution
Work experience
The employees who participated in the study were also asked to state their work experience. They were provided with five options, which included less than 1 year, 1 to less than 5 years, 5 to less than 10 years, 10 to less than 15 years, and 15 years and above. Employees who had accumulated between 5 and 10 years of work experience formed the largest group of employees (27.8%). The second biggest group of informants had accumulated 15 years (or more) in work experience and they comprised 25.9% of the total sample. The third and fourth largest informant groups constituted 22.4% and 19.5% of the total sample and they were of employees who had accumulated “1 to 5 years” of work experience and “10 to less than 15 years” of work experience. Table 4.6 below summarizes the findings.
Table 4.6. Work Field Distribution
Work Experience
Frequency
Percent
Valid Percent
Cumulative Percent
Valid
1.0
16
4.3
4.3
4.3
2.0
83
22.4
22.4
26.8
3.0
103
27.8
27.8
54.6
4.0
72
19.5
19.5
74.1
5.0
96
25.9
25.9
100.0
Total
370
100.0
100.0
The same data depicted above is replicated graphically in Figure 4.6 below.
Figure 4.6. Work Field Distribution
Job position
Job position was also assessed as another demographic variable in the study. It was categorized into four segments which were “grade code 3-10,” “grade code 11-14,” “grade code 15-17,” and “grade code 18+.” Most of the respondents sampled were within the grade code 11-14. They comprised 45.5% of the total sample. The second largest group of respondents was associated with the grade code 3-10 and they comprised 45.4% of the respondents. The smallest group of respondents was only 7.8% of the total sample and they were within the grade code 15-17. Figure 4.7 below outlines the distribution.
Figure 4.7. Job Position Distribution
An analysis of the respondents’ training was reviewed relative to the number of training courses they have enrolled in the company within the last five years. Based on this criterion, it was established that most of the respondents had participated in five or more training courses within the past five years. This group of respondents comprised 65.4% of the total sample. Those who had attended the same training course four times were 10% of the population. A third group of respondents who had attended the training sessions at least three times closely followed them. Those who had attended the same sessions two times were 8.9% of the total population, while employees who had attended training one time were about 4% of the total sample. Some employees also said that they had not attended any type of training sessions in the organization. They comprised about 1% of the total sample. Figure 4.7 below summarizes the findings.
Figure 4.8: Training Sessions Attended
Besides the above demographic data, the relationship between the dependent and independent variables were also explored and the findings appear below.
Findings of the Relationship between the Independent and Dependent Variables
As highlighted in the third chapter of this paper, the second part of the questionnaire investigated five dimensions of knowledge management. The first one was critical activities; the second one risk of loss; third one was communication skills; fourth one was culture and the fifth one was knowledge transfer. The findings for the first aspect of critical activities is highlighted below.
Critical activities (1st dimension)
Table 4.8 below shows the results of critical activities as the first dimension of analysis in the questionnaire completed by the informants.
Top management recognizes KT as a critical activity
F
35
41
139
92
55
3.251
1.1412
N
2
%
9.5
11.1
37.6
24.9
14.9
S2
Adequate organizational resources are dedicated to knowledge sharing
F
25
45
159
89
43
3.222
1.0385
N
4
%
1.5
3.8
16.5
40.1
38.1
S3
Intellectual assets are valued and appreciated in our organization
F
21
41
158
91
45
3.275
1.0196
N
5
%
5.7
11.1
42.7
24.6
12.2
S4
KT is fostered and encouraged in my organization
F
25
48
137
97
51
3.282
1.0853
N
3
%
6.8
13.0
37.0
26.2
13.8
S5
KT is a key resource for my organization
F
36
52
131
87
53
3.192
1.1600
N
1
%
9.7
14.1
35.4
23.5
14.3
1stDimension (Critical Activities) average
3.24
1.088
N
According to the table above, the highest response was S5, “KT is a key resource for my organization.” It had a mean of 3.192 and a standard of deviation of 1.1600. The second highest response rate was related to statement S1, which says, “Top management recognizes KT as a critical activity.” Its mean and standard of deviation were 3.251 and 1.1412, respectively. The third highest response was S4, which says, “KT is fostered and encouraged in my organization.” Its mean and standard of deviation were 3.282 and 1.0853, respectively. The fourth highest response rate was attributed to statement S2, which stated, “Adequate organizational resources are dedicated to knowledge sharing.” Its mean and standard of deviation were 3.222 and 1.0385, respectively. Conversely, the least response rate was highlighted in statement S3, which stated, “Intellectual assets are valued and appreciated in our organization.” It had a mean of 3.275 and a standard of deviation of 1.0196. The general results for this dimension of analysis are outlined below.
Result Analysis: In sum, the result showed that the mean of the first dimension of analysis (critical activities) was 3.24 with a standard of deviation of 1.088 and an “agree” degree of response. This result shows that the employees of Saudi Aramco agreed to the fact that knowledge management was a critical activity in the firm. The second dimension investigated in the review sought to find out if the risk of loss affected knowledge transfer. The results are depicted below.
Risk of loss
The second dimension investigated in the study was about the risk of loss. Table 4.9 below shows the results of this analysis in the questionnaire completed by the informants.
Table 4.8: Risk of Loss (2nd Dimension) Findings
No
Statements
Degree of agreement
Mean
STD
Rate
Rank
SD
D
N
A
SA 5
S6
My operations will be affected by the retirement of older workers
F
37
51
114
90
64
3.261
1.211
N
3
%
10.0
13.8
30.8
24.3
17.3
S8
Younger workers need more training to carry out their processes
F
12
13
75
80
177
4.112
1.070
A
1
%
3.2
3.5
20.3
21.6
47.8
S9
Younger employees need supervision from older workers to carry out their activities
F
16
27
73
110
131
3.877
1.125
A
2
%
4.3
7.3
19.7
29.7
35.4
2ndDimension (Risk of Loss) average
3.75
1.135
The highest response was observed in statement S8, which stated, “Younger workers need more training to carry out their processes.” It had a mean of 4.112 and a standard of deviation of 1.070. The second highest response was associated with statement S9, which stated, “Younger employees need supervision.” Lastly, the statement with the least response was S6 and it stated that, “My operations will be affected by the retirement of older workers.” Both S9 and S6 had mean figures of 3.877 and 3.261, respectively. Their standards of deviation were also 1.125 and 1.211, respectively. The general results for this dimension of analysis are outlined below.
Result Analysis: In sum, the results depicted above show that the mean of the second dimension of analysis (risk of loss) was 3.75 with a standard of deviation of 1.135 and an “agree” degree of response. These results showed that the employees of Saudi Aramco affirmed that the risk of loss has an effect on knowledge transfer. The third dimension investigated in the study sought to find out if communication skills had an effect on knowledge transfer and the findings are outlined below.
Communication skills (3rd dimension)
The third dimension investigated in the questionnaire was communication skills. Table 4.10 below shows the results of the evaluation.
Table 4.9: Descriptive statistic of the Communication Skills, 3rd dimension
No
Statements
Degree of agreement
Mean
STD
Rate
Rank
SD
D
N
A
SA 5
S10
Older and younger workers share a pleasant working relationship
F
14
24
124
127
68
3.59
.997
A
5
%
3.8
6.55
33.5
34.3
18.4
S11
I am willing to share knowledge with employees
F
12
6
46
70
221
4.35
.999
SA
4
%
3.2
1.6
12.4
18.9
59.7
S12
KT is effective between older and younger employees
F
12
29
102
109
101
3.73
1.067
A
1
%
3.2
7.8
27.6
29.5
27.3
S13
In my organization, seeking external help or advice is valued and encouraged
F
18
32
126
120
56
3.46
1.028
SD
2
%
4.9
8.6
34.1
32.4
15.12
S14
My organization is able to acquire the knowledge communication
F
21
34
132
121
44
3.37
1.019
N
3
%
5.7
9.2
35.7
32.7
11.9
S15
My organization needs to conduct training sessions to adapt knowledge sharing between older and younger workers
F
12
29
126
128
69
3.58
.996
A
6
%
3.9
6.55
34.9
35.7
19.1
3rdDimension (Communication Skills)average
3.7
1.022
A
According to the table above, the statement with the highest response was S12, which says, “KT is effective between older and younger employees.” It had a mean of 3.73 and a standard of deviation of 1.067. Statement S13, which says, “In my organization, seeking external help or advice is valued and encouraged” had the second highest response rate. It had a mean of 3.46 and a standard of deviation of 1.028. The fourth highest response rate was reported in statement S11 – “I am willing to share knowledge with employees.” The mean was 4.35 and the standard of deviation was 0.999. The statement with the fifth highest response rate was S10 – “Older and younger workers share a pleasant working relationship.” Its mean and standard of deviation were 3.59 and 0.997, respectively. The question with the least response was S10 – “Older and younger workers share a pleasant working relationship.” Its mean and standard of deviation were 3.58 and 0.996, respectively. The general results for this dimension of analysis are outlined below.
Result Analysis: In sum, the results depicted above show that the mean of the third dimension of analysis was 3.75 with a standard of deviation of 1.135 and an “agree” degree of response. This result showed that the employees of Saudi Aramco agreed to the fact that communication skills have a significant effect on knowledge transfer in the firm. The fourth dimension examined in the study sought to find out the effect of culture on knowledge transfer. Its findings are highlighted below.
Culture (4th dimension)
The fourth dimension investigated in the questionnaire was culture. Table 4.11 below shows the results of the evaluation.
Table 4.10. Descriptive statistic of Culture, 4th dimension
No
Statements
Degree of agreement
Mean
STD
Rate
Rank
SD
D
N
A
SA
S25
My organization supports KT culture
F
9
20
66
207
92
3.90
0.895
A
1
%
2.3
5.1
16.8
52.5
23.4
S26
My organization tends to share knowledge
F
6
22
94
197
75
3.79
0.865
A
2
%
1.5
5.6
23.9
50.0
19.0
S27
My organization provides adequate details about performance measures
F
20
64
132
123
55
3.33
1.064
N
6
%
5.1
16.2
33.5
31.2
14.0
S28
KT is considered as a strength and not a weakness to employee performance
F
13
72
122
124
63
3.39
1.060
N
5
%
3.3
18.3
31.0
31.5
16.0
S29
KT is a valued by my organization performance management program System
F
14
77
109
109
85
3.44
1.134
A
4
%
3.6
19.5
27.7
27.7
21.6
S30
My organization has the ability to value the KT
F
8
64
103
162
57
3.50
0.994
A
3
%
2.0
16.2
26.1
41.1
14.5
4thDimension (Culture)average
3.55
1.002
A
According to the table above, the statement with the highest response was S25, which stated that, “My organization supports KT culture.” It had a mean of 3.90 and a standard of deviation of 0.895. The second highest response rate was statement S26, which stated that, “My organization tends to share knowledge.” It had a mean of 3.79 and a standard of deviation of 0.865. The statement with the third highest response rate was S30 and it stated that, “My organization has the ability to value KT.” Its mean and standard of deviation were 3.50 and 0.994 respectively. The fourth highest response rate was in statement S29, which stated that, “KT is valued by my organization performance management program system.” It had a mean of 3.44 and a standard of deviation of 1.134. The statement with the least response was S28 – “KT is considered as a strength and not a weakness to employee performance.” Its mean and standard of deviation were 3.39 and 1.060, respectively. The general results for this dimension of analysis are outlined below.
Result Analysis: In sum, the results depicted above show that the mean of the fourth dimension of analysis was 3.55 with a standard of deviation of 1.002 and an “agree” degree of response. This results showed that the employees of Saudi Aramco agreed to the fact that culture has a significant effect on knowledge transfer. The fifth dimension analyzed in the study was knowledge transfer and its results are highlighted below.
Knowledge transfer (5th dimension)
The fifth dimension investigated in the questionnaire was knowledge transfer. Table 4.12 below shows the results of the evaluation.
Table 4.11. Descriptive statistic of knowledge transfer, 5th dimension
No
Statements
Degree of agreement
Mean
STD
Rate
Rank
SD
D
N
A
SA
S19
My organization’s policy and structure supports KT
F
1
1
12
15
14
3.93
0.961
A
3
%
2.3
2.3
27.9
34.9
32.6
S20
The value created by the KT is considered good
F
0
3
3
18
19
4.23
0.868
N
1
%
0
7.0
7.0
41.9
44.2
S21
In my organization, it is easy to justify the resources spent on assimilating the transferred knowledge.
F
2
3
10
17
11
3.74
1.071
A
5
%
4.7
7.0
23.3
39.5
25.6
S22
Older employees should take a proactive effort to teach younger workers about organizational processes
F
1
3
6
23
10
3.88
0.931
A
4
%
2.3
7.0
14.0
53.5
23.3
S23
There is effort to train young employees about the organizational processes
F
3
2
3
17
18
4.05
1.154
A
2
%
7.0
4.7
7.0
39.5
41.9
5thDimension (Knowledge Transfer) average
3.96
0.997
A
According to the table above, the statement with the highest response was S20, which says, “The value created by the KT is considered good.” It had a mean of 4.23 and a standard of deviation of 0.868. Statement S23, which says, “There is effort to train young employees about the organizational processes” had the second highest response rate. It had a mean of 4.05 and a standard of deviation of 1.154. The statement with the third highest response rate was S19 and it stated, “My organization’s policy and structure supports KT.” It had a mean of 3.93 and a standard of deviation of 0.961. Comparatively, statement S22 had the fourth highest response rate and it stated that, “Older employees should take a proactive effort to teach younger workers about organizational processes.” It had a mean of 3.88 and a standard of deviation of 0.931. The question with the least response was S21 and it stated that, “In my organization, it is easy to justify the resources spent on assimilating the transferred knowledge.” Its mean and standard of deviation were 3.74 and 1.071, respectively. The general results for this dimension of analysis are outlined below.
Result Analysis: In sum, the results depicted above show that the mean of the fifth dimension of analysis was 3.96 with a standard of deviation of 0.997 and an “agree” degree of response. This finding means that the employees of Saudi Aramco agreed to the fact that knowledge transfer was a critical process in the organization’s operations. The findings for the group statistics and variances appear below.
Group Statistics and Variances
Table 4.12 below explains the results of the group statistics.
Table 4.12. Group Statistics
Group Statistics
KT
Gender
Number
Mean
STD
T value
Df
Sig
Female
73
3.5452
.71977
.627
340
.531
Male
269
3.4800
.80401
.668
An analysis of the effect of job position on knowledge transfer practices of Saudi Aramco was done using the Anova method and the results appear in Table 4.14 below.
Table 4.13. Anova (Job Position Effect on Knowledge Transfer)
Dimension
Sources of Variances
Sum of squares
Df.
Means Squares
F
Sig
Job Position
Between Groups
5.600
3
1.867
3.075
.028
Within Groups
205.190
338
.607
Total
210.790
341
According to the statistics shown above, the significance value of the relationship between job position and knowledge transfer is indicated as 0.028 indicating that the two factors are significantly related. The sum of squares also supports the same narrative because the findings between groups was 5.600 and within groups, it was 205.190. Generally, the results of the data analysis shows that the effect of job position on KT is.028, which indicates that it has a significant effect on knowledge transfer. Table 4.14 below also alludes to the same view.
Table 4.14. Job Position and Knowledge Transfer findings ANOVA
ANOVA
KT
Sum of Squares
df
Mean Square
F
Sig.
Between Groups
5.600
3
1.867
3.075
.028
Within Groups
205.190
338
.607
Total
210.790
341
An analysis of the correlation among the five dimensions highlighted in this paper revealed the following outcomes in Table 4.15 below.
Table 4.15: Correlation among Variables
Correlations
D1
D2
D3
D4
D5
D1
Pearson Correlation
1
.410**
.569**
.749**
.690**
Sig. (2-tailed)
.000
.000
.000
.000
N
364
358
356
351
342
D2
Pearson Correlation
.410**
1
.587**
.451**
.465**
Sig. (2-tailed)
.000
.000
.000
.000
N
358
359
357
351
342
D3
Pearson Correlation
.569**
.587**
1
.660**
.665**
Sig. (2-tailed)
.000
.000
.000
.000
N
356
357
357
351
342
D4
Pearson Correlation
.749**
.451**
.660**
1
.827**
Sig. (2-tailed)
.000
.000
.000
.000
N
351
351
351
351
342
D5
Pearson Correlation
.690**
.465**
.665**
.827**
1
Sig. (2-tailed)
.000
.000
.000
.000
N
342
342
342
342
342
**. Correlation is significant at the 0.01 level (2-tailed).
According to Table 4.15 above, all the five dimensions investigated in the paper were correlated. This fact is based on the 0.000 significance value attributed to them. They symbolize correlation because such an outcome is significant at the level 0.01 for a 2-tailed analysis. Although significance was established among the variables, the highest correlation emerged between dimensions five and four (knowledge transfer and culture). The second highest correlation was established between the fourth (culture) and first (critical activities) dimensions. This is because the variables had the second highest correlation value of.749**. Lastly, two dimensions that had the weakest correlations were one (critical activities) and two (risk of loss).
The findings developed in this section of analysis have shown that all the five dimensions investigated in the study were correlated. This outcome was established because the Pearson’s correlation coefficient had a significance value of 0.000 for all the five dimensions explored. Generally, this finding shows that critical activities relate with risk of loss, communication skills, culture, and knowledge transfer. However, the strongest correlations were observed between dimensions five and four (knowledge transfer and culture). This finding aligns with the views of several research studies, which have shown the power of culture in influencing organizational outcomes (Bolisani & Scarso, 2014). For example, the study by Torabia and El-Den (2017) showed that the main aspects of organizational culture, which affected knowledge transfer, are artifacts, norms and shared beliefs.
Culture is central to bridging the knowledge gaps at Saudi Aramco because it innately describes what employees in the organization should do to inculcate new knowledge to younger employees. It also helps the younger employees to understand what they need to do to receive the knowledge from older workers. This way, the company’s institutional memory is preserved and the process is accomplished in a sustainable manner. Stated differently, when a culture of knowledge transfer is established in the organization, employees do not need a reminder (or external input from third parties) to improve their work practices. Here, culture acts as the binding force between older and younger employees to the extent that it would be difficult to notice generational differences among the employees. The role of culture in this context directly appeals to the research gap identified in the literature review section of this paper and the first chapter of this report because it was established that many organizations today experience knowledge gaps because of generational differences. The establishment of a strong culture of knowledge transfer ensures that such gaps do not exist because all employees are encouraged to work as one unit.
The least correlation observed in the study was between risk of loss and critical activities. Perhaps this finding could have been a result of the ambiguity associated with the concept of risk of loss for the organization because it could possibly be unclear how the risk of loss affects critical activities in the organization. Here, the lack of clarity could partly stem from the fact that both risk of loss and critical activities are tools for promoting or inhibiting knowledge transfer practices. Therefore, the workers did not properly establish a cause and effect relationship.
Hypotheses Testing
The simple linear regression was used to test the four hypotheses (highlighted as H1, H2, H3, and H4) in the study. As a recap, the project hypotheses are listed below.
H1: Critical activities have an effect on KT performance.
H2: Risk of losing critical knowledge has an effect on KT performance.
H3: Communication skills between older and younger workers have an effect on KT performance.
H4: Organizational Culture has an effect on KT performance.
Table 4.16 below highlights the outcomes for the hypotheses test.
Table 4.16: Hypotheses Test Findings
Hypothesis
Sum of Square
Mean Square
R
R square
F
Sig
H1
100.282
100.282
.690
.476
308.539
.000
110.508
.325
H2
45.672
45.672
.465
.217
94.044
.000
165.118
.486
H3
93.165
93.165
.665
.442
269.296
.000
117.625
.346
H4
144.300
144.300
.827
.685
737.885
.000
66.490
.196
According to the table above, we find that critical activities had an effect on the performance of Saudi Aramco’s knowledge transfer program. This view is established because the significance is.000, which according to Kotur and Anbazhagan (2014) affirms a significant relationship between the variables measured. At the same time, the r-square value is 0.476, which signifies the same outcome. Based on these findings, hypothesis 1 (H1) “Critical activities have an effect on KT performance” is affirmed.
Based on the table above, we find that the loss of critical knowledge has an effect on the performance of Saudi Aramco’s knowledge transfer program. This view is established because the significance value of H2 is.000, which according to Gholami, Asli, Nazari-Shirkouhi, & Noruzy (2013) affirm a strong relationship. At the same time, the r-square value is 0.217, which signifies the same outcome. Based on these findings, hypothesis 1 (H2) “Risk of losing critical knowledge has an effect on KT performance” is also affirmed.
The above table also shows that communication skills between older and younger workers have an effect on the KT performance at Saudi Aramco. This view is established because the significance value of H3 is.000, which according to Ekore (2014) affirms a significant relationship. At the same time, the r-square value is 0.442, which signifies the same outcome. Based on these findings, hypothesis 1 (H3) “Communication skills between older and younger workers have an effect on KT performance” is affirmed. Lastly, the same outcome is true for H4 because the hypothesis “Organizational Culture has an effect on KT performance” is affirmed by the significance value of 0.000, which is depicted in the table above. The r square of.685 also supports a similar narrative. The results of the linear regression test for the hypotheses also affirm the above findings and they appear below.
Simple linear regression tests
The Results of the Simple Linear Regression Test for the Hypothesis H1 appears in Table 4.17 below.
Table 4.17. Variables Analysis
Variables Entered/Removeda
Model
Variables Entered
Variables Removed
Method
1
D1b
.
Enter
a. Dependent Variable: D5
b. All requested variables entered.
The model summary in Table 4.18 below shows that the standard of error of the estimate was 0.57011 and the R-square was 0.476.
Table 4.18. Model Summary
Model Summary
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1
.690a
.476
.474
.57011
a. Predictors: (Constant), D1
A review of the results for the ANOVA test appears in Table 4.19 below.
Table. 4.19: ANOVA Test Findings
ANOVAa
Model
Sum of Squares
df
Mean Square
F
Sig.
1
Regression
100.282
1
100.282
308.539
.000b
Residual
110.508
340
.325
Total
210.790
341
a. Dependent Variable: D5
b. Predictors: (Constant), D1
According to the table above, H1 is accepted because the significance value is 0.000, which is less than 0.05. The results for the second hypothesis test also appear in Table 4.20 below.
Table 4.20. Variables Entered For Testing H2
Variables Entered/Removeda
Model
Variables Entered
Variables Removed
Method
1
D2b
.
Enter
a. Dependent Variable: D5
b. All requested variables entered.
The r-square and standard of error of the estimates above were 0.217 and 0.69688 as shown in Table 4.21 below.
Table 4.21. Model Summary
Model Summary
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1
.465a
.217
.214
.69688
a. Predictors: (Constant), D2
The results for the ANOVA test are highlighted in Table 4.22 below.
Table 4.22. ANOVA Results for H2
ANOVAa
Model
Sum of Squares
df
Mean Square
F
Sig.
1
Regression
45.672
1
45.672
94.044
.000b
Residual
165.118
340
.486
Total
210.790
341
a. Dependent Variable: D5
b. Predictors: (Constant), D2
Based on the findings highlighted above, H2 is accepted because the significance value is 0.000.
The results for the H3 testing appears in Table 4.23 below.
Table 4.23: Variables for H3 Testing
Variables Entered/Removeda
Model
Variables Entered
Variables Removed
Method
1
D3b
.
Enter
a. Dependent Variable: D5
b. All requested variables entered.
According to the table above, the variable entered when testing H3 were communication skills (D3) and knowledge transfer (D5). The model summary in Table 4.24 below shows that the standard of error of the estimate was 0.58818, while the adjusted r-square was 0.440.
Table 4.24. Model Summary for H3
Model Summary
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1
.665a
.442
.440
.58818
a. Predictors: (Constant), D3
The results of the ANOVA test are highlighted in Table 4.25 below.
Table 4.25. ANOVA Results for H3
ANOVAa
Model
Sum of Squares
df
Mean Square
F
Sig.
1
Regression
93.165
1
93.165
269.296
.000b
Residual
117.625
340
.346
Total
210.790
341
a. Dependent Variable: D5
b. Predictors: (Constant), D3
According to the table above, H3 is accepted because the significance value is 0.000. The results of H4 testing also appear in Table 4.26 below.
Table 4.26. Variables Entered and Removed for H4
Variables Entered/Removeda
Model
Variables Entered
Variables Removed
Method
1
D4b
.
Enter
a. Dependent Variable: D5
b. All requested variables entered.
According to the table above, the variables entered when testing hypothesis H4 were culture (D4) and knowledge transfer (D5). The model summary highlighted in Table 4.27 below shows that the standard of error of the estimates were 0.44222, while the adjusted r-square was 0.684.
Table 4.27. Model Summary for H4
Model Summary
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1
.827a
.685
.684
.44222
a. Predictors: (Constant), D4
The findings of the ANOVA test appear in Table 4.28 below.
Table 4.28. ANOVA Test Results for H4
ANOVAa
Model
Sum of Squares
df
Mean Square
F
Sig.
1
Regression
144.300
1
144.300
737.885
.000b
Residual
66.490
340
.196
Total
210.790
341
a. Dependent Variable: D5
b. Predictors: (Constant), D4
According to the findings highlighted above, H4 is accepted because the significance value is 0.000. Collectively, these tests show that all the four hypotheses were accepted. A discussion of these findings together with the results depicted in this chapter are discussed in chapter 5 below.
Conclusion and Recommendations
This chapter provides a detailed analysis of the findings highlighted in chapter 4. It is aimed at making sense of the statistical results by reviewing how the information presented in the findings section relates with different aspects of the research process and respondents’ characteristics. However, before delving into this analysis, it is important to understand that this study was guided by four research questions. They sought to establish Saudi Aramco’s critical activities, investigate which employees have knowledge and experience of value, explore the nature of knowledge transfer relationships between knowledge providers and recipients in the workplace as well as establish how Saudi Aramco could bridge the knowledge gap between the older and younger employees. The subsequent sections below analyze these research areas sequentially.
Saudi Aramco’s Critical Activities
The first research question investigated in this study was centered on understanding whether knowledge transfer was a critical activity at Saudi Aramco, or not. In chapter four, it was established that the top management of the organization considers knowledge transfer as a critical activity in the firm. At the same time, the employees of the company posited that the organization allocated adequate resources to this function. This finding shows that intellectual assets are valued and appreciated at Saudi Aramco. Therefore, knowledge transfer is a key resource for the organization. Based on the appreciation for the critical role played by knowledge transfer at Saudi Aramco, the need to ensure that there is no knowledge gap between older and younger workers is emphasized.
The realization that knowledge transfer is a critical tenet of organization activities draws attention to the core competency approach, which was highlighted in the second chapter of this paper. Proponents of this approach say that effective knowledge management systems are often developed when intellectual capital is deemed as a key resource for organizational prosperity (Meier-Comte, 2012). However, in the context of this study, it is pertinent to note a distinction between the ability of Saudi Aramco to improve its performance and its ability to improve its knowledge management systems. This is not to deny the complementary nature of the different elements of analysis because studies have also shown that they are critical tenets of organizational identities as well (Ivey, 2014).
Generally, the core competency approach demonstrate that when firms recognize KT as a critical resource, they achieve new heights of success. This core competency approach could also include the efficiency through which companies or organizations deliver goods or services to the market and the efficiency through which they do so as well (Simar & Rahmanseresht, 2017). The same competencies have allowed organizations to develop customized goods/services and optimize their logistics (Simar & Rahmanseresht, 2017). The process of employing qualified employees and disseminating a succinct vision for the organization are also other attributes or organizational efficiency that are attributed to the core competency approach (Simar & Rahmanseresht, 2017).
By understanding that KT is a critical activity in the organization, Saudi Aramco could enjoy many benefits that accrue at individual and group levels. Some of these benefits have been highlighted in the literature review section of this paper and they posit that, at an individual level, the firm could enjoy different benefits of knowledge sharing, including (but are not limited to) improved employee attitude, ability to meet deadlines, consistent performance and enhanced proactivity. At a group level, Saudi Aramco will benefit from the ability of its employees to work well in groups, increased contribution to organizational activities, improved employee attitudes, and increased participation at different levels of organizational performance (Francesca, 2017). These benefits notwithstanding, different researchers have also pointed out that knowledge sharing activities can be monitored across different levels of participation, including group discussions, interest groups, learning activities, seminars and conferences (Meier-Comte, 2012).
Consequently, by recognizing that knowledge management is a critical activity, Saudi Aramco needs to bridge the gap between its older and younger employees. The need to bridge this gap is partly highlighted by the second research question of the study, which is addressed below.
Which Employees At Saudi Aramco Have The Knowledge and Experience Of Value?
One of the key areas of focus for the research questions investigated in this study is the determination of which group of employees have the knowledge and experience of value. Based on the responses received from the research participants, older employees emerged as being the custodians of the company’s knowledge. This is because this group of employees have worked in the organization for a long time and are more familiar with its processes compared to their younger counterparts. However, this finding seems to contradict some of the demographic variables that emerged in the study (and which will be explored in subsequent sections of tis chapter) because it was established that most of the employees had more than 15 years of work experience in the organization. This finding means that most of the young employees in the company (who form a majority of the research informants) have worked for a long time in the firm without properly acquiring the skills needed to propel the organization further (in the absence of their older counterparts). Based on this analysis, the research problem, which was highlighted in the first section of this paper, is emphasized because there has been no proper knowledge transfer mechanism to help newer employees acquire the knowledge needed to undertake their functions. In this regard, older employees at the firms emerged as the custodians of the company’s most valuable intellectual capital.
Time should be considered a core tenet of Saudi Aramco’s effort to bridge the knowledge gap between younger and older employees. As highlighted in the literature review section of this report, the processual approach should be adopted in such situations because it helps managers to understand how to fill knowledge gaps between different groups of employees. In other words, this technique is useful in understanding how to undertake information sharing activities over a specific period. The adoption of the processual approach helps to understand how some of the dimensions highlighted in chapter four would fit within the wider context of knowledge exchange in the workplace. This is because this technique explains how cultural exchanges, decision-making processes, and structural change processes influence KT (Jasimuddin, 2012).
Many research studies have evaluated how the processual approach could be applied in KT settings by paying a close attention to the nature of interactions among different stakeholders as a measure of how they exchange knowledge and interact with each other (Abbott, 2016; King & Lawley, 2016). Although many processual analyses use time as the main unit of analysis, the process does not only stop at this point of analysis; instead, it extends to the conceptualization, analysis, and description of events or activities in an organization that fall within the context of knowledge management. The basic context of applying this technique in the knowledge management setting of Saudi Aramco is the understanding that social interactions and knowledge management in the firm often occur across a specified time. Here, the period taken for knowledge exchange to occur (and context, which this process occurs) are at the center of all social interactions that lead to knowledge exchanges. The uniqueness of this approach is temporality, which makes it different from other frameworks of analysis highlighted in this study.
The driving factors which influence how KT should occur between knowledge providers and recipients is the understanding that social interactions often occur dynamically and not necessarily in a steady manner. From an organizational perspective, the KT processes at Saudi Aramco could be representing the duality of agency and context of the relationship between knowledge providers and recipients. This analysis shows that contexts have always shaped the nature of interaction between older and younger employees, while knowledge providers are often the main protagonists of the same process. This same analysis shows that knowledge providers are the main drivers of the processes that lead to knowledge exchange. However, at the same time, the entire chain of knowledge transfer cannot only be explained by the actions of one group of workers. Thus, the actions of both knowledge providers and recipients should be viewed within varied, but specific, contexts that ultimately limit the kinds of information that could be exchanged. The insight and influence of information processing that should be happening between knowledge providers and recipients in Saudi Aramco could be limited by the same context. Here, the social interaction that should occur between knowledge providers and recipients should be analyzed through a cumulative process that recognizes the nature of knowledge transfer relationships between knowledge providers and recipients in the firm. This element of analysis is discussed below.
Nature of Knowledge Transfer Relationships between Knowledge Providers and Recipients in the Firm
The third research question investigated in this study involved understanding the nature of knowledge transfer relationships between knowledge providers and knowledge recipients at Saudi Aramco. Although this chapter shows that there is a significant gap between the older and younger employees of Saudi Aramco, most of the workers sampled said both sets of employees shared a pleasant working relationship. They also said they were willing to share knowledge among themselves. This expression of willingness indicates that the management of the company could enjoy employee buy-in when they develop a model for transferring knowledge from the older workers to the younger ones.
Relative to the above analysis, most of the employees believed that knowledge transfer between older and younger employees would be effective if properly adopted. A majority of them also emphasized the need to conduct training sessions between both cadres of employees as one way of improving the synergy between both sets of workers. The company’s management needs to exploit this opportunity for the advancement of KT because, as explained by the workers, the company is in a position to acquire the necessary resources to make this happen, including empowering the workers to communicate effectively. This view aligns with the fact that Saudi Aramco has traditionally embraced the need to seek external advice in improving its operational processes. This effort has mostly been aligned with its quest to improve its competitive position
According to Meier-Comte (2012), the efficiency of knowledge management often increases when managers are experiencing the need to know their competitors’ actions and how they are formulating, designing or implementing their business strategies. As mentioned in the literature review section of this paper, contextualized studies have shown the effect of knowledge management systems around the globe. Particularly, they have shown that the failure to nurture good relationships between knowledge providers and recipients have led to the failure of many organizations to manage their knowledge effectively and extract the most value from it (Simar & Rahmanseresht, 2017). Indeed, as Simar and Rahmanseresht (2017) posit, organizations that fail to realize the importance of having this effective strategy for managing good relationships in the workplace suffer a high possibility of experiencing serious gaps, based on the creation of knowledge gaps that would occur from their inaction. Relative to this assertion, Simar and Rahmanseresht (2017) add that such organizations could suffer different negative outcomes, such as a decline in quality of operations, operational redundancies, and the occurrence of mistakes and errors in organizational processes. The failure to understand the nature of relationships between knowledge providers and recipients also creates the likelihood that an organization’s knowledge resource would be depleted and the time and money involved in creating it would go to waste.
Based on the above findings, Saudi Aramco should not exclusively rely on its internal competencies or knowledge. Instead, its needs to borrow best practice standards from experts to maintain its key competencies. By doing so, it will tap into pools of information (or knowledge) that will allow it to improve its competencies, skills and strategies. Relative to this assertion, researchers have said that knowledge is not only accessed, but also internalized by organizations and stored to meet corporate goals (Francesca, 2017; Argote, 2012). This process is multifaceted.
Besides creating a common pool for accessing the knowledge, North and Kumta (2014) say that forging new relationships between different cadres of workers could also help to foster the generation of new intellectual capital. While many studies often highlight the need for knowledge exchange to occur between knowledge providers and knowledge recipients, they may have as well presented knowledge as a tangible resource, such as land, because their analyses mirror this analogy (Francesca, 2017; Argote, 2012). These discussions have happened within the context of understanding knowledge management approaches.
This analysis reflects some of the findings highlighted in the second chapter of this report, which showed that four types of knowledge management approaches could be used to repair relationships between different groups of workers. The first and second ones are the mechanistic and systematic approaches. The last two are the core competency and cultural approaches (Simar & Rahmanseresht, 2017). Based on the findings of this study, the cultural approach emerges as being the most relevant to this study because most of the informants’ responses emphasized the need to have a strong culture of KT.
The cultural approach to knowledge management traces its origins in the field of change management and looks at knowledge as a management issue (Ivey, 2014). Although technological management is treated as a useful tool for managing this resource, proponents of the cultural approach do not view it as the only instrument for doing so. Instead, they focus more on innovation and creativity (Simar & Rahmanseresht, 2017). Thus, they do not necessarily believe in manipulating explicit resources to manage knowledge.
In the context of the responses gathered in this paper knowledge sharing will happen within an institutional context because such a setup accommodates employees who work together and share their experiences within the same settings (Ivey, 2014). As Simar and Rahmanseresht (2017) point out, such setups help employees to share intelligence (freely) among their colleagues. There are two key assumptions underlying this cultural approach. One of them is that organizations, which pursue them, are often willing to shake up their organizational cultures to improve employee behaviors. Another one is that organizational behaviors are often changed whenever businesses have exhausted the limits of their technological innovations (Meier-Comte, 2012). These assumptions could help to provide clarity regarding the third research question, which is examining the nature of knowledge transfer relationships between knowledge providers and knowledge recipients at Saudi Aramco.
Which Employees Have the Knowledge and Experience of Value?
The third research question that was investigated in this study centered on exploring the kind of relationships that employees have at Saudi Aramco. According to Wambui, Wangombe, and Muthura (2013), such relationships could strongly predict the synergy among employees in the organization. This view has been supported by several researchers such as Óskarsdóttir and Oddsson (2017) who have highlighted the importance of improving employee relationships (especially between higher and lower ranking employees) because teamwork is a significant predictor of organizational success.
When the participants sampled in this study were asked to respondent to statements that alluded to understanding the kind of relationships they shared with their colleagues, most of them said that they shared a good working relationship with their bosses and with themselves. The problem with this kind of interaction has been the inability for both sets of workers to engage in meaningful conversations that would spur knowledge transfer. This view closely aligns with the concept of culture, which has been highlighted severally in this paper. The concept has a huge role to play in determining how employees are going to relate because the power distance between older and younger workers or high ranking and lower cadre employees shape how different sets of workers relate in the organization.
Relative to this analysis, when the respondents were asked to explain their views about the role played by different types of workers in the organization and how their operations would affect the overall firm performance, most of them said that the retirement of workers would significantly dent the organization’s operations. This view aligns with the findings highlighted earlier, which showed that older workers were the main custodians of the company’s most valuable information. In other words, a majority of the employees believed that if these employees retired from the organization, the firm’s performance would significantly be affected. In this regard, it is also important to point out that some of them felt that management was not making enough effort to address the needs of knowledge transfer in the organization. This view partly informs the assertion by some informants who believed that younger workers needed more training to carry out their duties and responsibilities. At the same time, most of the employees also said younger workers need more supervision when undertaking their duties. This positive view reported in this chapter could have acted as a prompter for most of the employees to regard it as a platform for sharing information. In other words, most of them believed that when younger employees could acquire the knowledge required in carrying out their functions if their older counterparts mentored them. At the same time, doing so would inadvertently make them at par with their older colleagues.
How Saudi Aramco Bridges the Knowledge Gap between Older and Younger Employees
The last research question explored in this study strived to investigate how Saudi Aramco’s employees could bridge the knowledge gap between younger and older employees. Based on the findings highlighted in chapter 4 about knowledge transfer as one dimension of study, this element of analysis indicates that Saudi Aramco should be encouraged to uphold its existing polices and structures because it is perceived not to support knowledge transfer. This perception could outline the cause of the knowledge transfer gaps in the corporation because its employees appear not to understand how the company’s policies and structures support intellectual capital growth. The company’s management needs to work on this problem because as explained in the works of Akhavan and Pezeshkan (2014), companies should not only implement robust knowledge transfer policies and practices but also make the employees aware that it is trying to do so. This view is supported by many human resource studies that have highlighted the importance of involving employees in organizational change processes (Óskarsdóttir & Oddsson, 2017; Wambui et al., 2013).
The value of actively involving employees in knowledge transfer is high because most of them already understand that the process is good for accomplishing organizational goals and promoting their career. At the same time, there seems to be an existing goodwill from most of the employees in the organization about intellectual capital growth because a majority of them said that the organization could easily justify the kind of resources it has spent on knowledge transfer. This view draws attention to the fact that although they recognize that there are still many loopholes in the implementation of the knowledge transfer system in the firm, the organization is striving to make a change in this regard. Here, it is also essential to note that most of the employees believed that older employees should take a proactive role in teaching the younger workers about what they have learnt on the job. This reason partly explains why most of the workers believed that there were not enough effort made within the organization to train young workers about the organization’s processes.
Culture emerged as an important dimension that relates with the research question that focused on exploring ways to bridge the knowledge gap between younger and older workers because it had the strongest correlation with knowledge transfer. However, opinion was divided among the employees regarding whether Saudi Aramco supports a strong knowledge management culture. However, it is difficult to ignore the fact that a majority of the respondents did not approve of this statement. In other words, they seemed to support the view that the organization supported a culture of knowledge management. This is one area of growing importance in the organization and it will form the basis for some of the recommendations that will be outlined at the end of this report. Stated differently, the need for the culture of Saudi Aramco to be changed to accommodate knowledge transfer practices in the firm should be a priority. This way, the organization will have a better understanding of how it could share knowledge through the creation of a new platform for doing so (Óskarsdóttir & Oddsson, 2017; Wambui et al., 2013).
Based on the respondent’s views, Saudi Aramco seems to be faring well in providing adequate details about its performance measures. However, it is failing in safeguarding the foundation of their success (the institutional memory of the corporation), which is currently in the hands of the older workers. Therefore, the oil company should find new ways of transferring the same knowledge to new workers to protect its success. Culture provides a mechanism for doing so. Within its framework, the importance of presenting knowledge management as a strength and not a weakness should be emphasized. In other words, older workers should be made to feel that transferring knowledge to their younger counterparts is a strength and not a weakness on their part. Here, they should not be made to feel that doing so would make them weaker than their younger peers. By doing so, knowledge transfer would be increasingly seen as a key tenet of the company’s performance measure record. These views largely explain why most of the employees believe that Saudi Aramco has the ability to value knowledge transfer.
Based on the research questions highlighted above and on the dimensions investigated in the study, critical activities emerged to have a significant effect on the knowledge transfer practices of Saudi Aramco. The risk of loss also had the same influence on the firm’s knowledge transfer practices and were moderated by communication skills, which similarly influences knowledge transfer practices (Óskarsdóttir & Oddsson, 2017; Wambui et al., 2013). A broader analysis of the effects of culture on the company’s knowledge management practices also showed that it influenced how the organization managed its intellectual capital. These findings fit well with the conceptual framework for this study because in the literature review section, it was predicted that critical activities, risk of loss, communication skills, culture and demographic variables would significantly affect knowledge transfer. These elements of the analysis were presented as the independent variables and knowledge transfer was the dependent variable. Thus, based on these different elements of the conceptual framework, it is plausible to argue that all the independent variables presented in the study shared a positive correlation with the dependent variable – knowledge transfer.
A deeper analysis of these findings showed that the five independent variables were explored as the five dimensions of knowledge transfer. Although, it was established that all the five dimensions shared a positive correlation with the process, respondents were asked varied number of questions to understand the effect of each dimension on knowledge transfer activities in the organization. The third and fourth dimensions had the highest number of statements attributed to knowledge transfer practices because each one of them had six dimensions analyzed. Risk of loss had the least number of statements because the respondents were only asked three questions. The high number of statements attributed to the third and fourth dimensions of analysis could largely be attributed to the broad nature of communication skills and culture as influential elements of knowledge transfer. For example, different researchers such as Chen, Hsiao, and Chu, (2014) and Chin-Hui (2015) have explored the influence of culture on knowledge transfer. They say it is a broad determinant of firm performance, which has its roots spread in knowledge transfer, dispute resolution, firm accountability, leadership practices, and human resource performance (among others). Therefore, its influence on knowledge transfer is only a small aspect of its effects on firm performance. However, this attribute should be regarded as a contextualized understanding of the effects of culture on human resource practices. Broadly, these views fit within a wider framework of characteristics attributed to the respondents who provided them. A detailed analysis of the demographic information is explained below.
Analysis of Saudi Aramco Employees’ Demographic Information
Based on an analysis of the demographic data, a statistically significant difference in knowledge transfer caused by changes in demographic information (gender, age, nationality, educational level, work field, work experience, job position, and training) occurred. For example, it is possible to deduce that most of the information or views presented in the study were largely representative of men who formed the majority of the respondents (79%). Although it could be argued that this percentage is largely biased towards presenting the findings outlined in this study through a male perspective, it is also important to point out that the gender distribution reported in this study is largely representative of the gender disparities that exist in Saudi Aramco. More importantly, it is essential to note that these disparities do not affect the quality of information presented in this review because it is an accurate reflection of the true characteristics of Saudi Aramco employees.
Based on the general age of the participants who took part in the study, it is also important to point out that the views highlighted in the study were largely representative of the younger workforce at Saudi Aramco because a majority of the respondents (42%) was less than 30 years. In addition, 37% of them were between the ages of 30 years and 40 years, meaning that about 80% of the employees who gave their views in this study were below the age of 40. Therefore, it could be argued that the findings of this review were largely representative of the opinions of a mostly young workforce in the organization.
The analysis of demographic data based on nationality showed that 98% of the employees who took part in the study were Saudi. This was not surprising because Saudi Aramco is a Saudi Arabian oil company and it is natural that most of the employees would be of the same nationality. Nonetheless, it is essential to point out that most of the views expressed in this paper are of an educated workforce because close to half of the respondents who took part in the study had a bachelor’s degree. Only 17% of them had high school (or lower) education level. These statistics imply that the majority of the employees were educated. Therefore, the information given provided by the respondents was mostly provided from an educated point of view. It is also essential to note that a majority of these respondents worked in the marketing department and with a work experience of 15 years or more. This analysis means that the views provided in this analysis could be understood to be from seasoned employees at the firm because the smallest group of employees (evaluated in terms of work experience) had worked for less than one year.
The hypotheses sampled were all accepted as per the findings of the simple linear regression tests. To recap, the analysis showed H1, which suggested that critical activities have an effect on Knowledge Transfer, was accepted. The same was true for H2, H3, and H4 because the statistical results also accepted that the risk of loss has an effect on knowledge transfer, communication skills have an effect on knowledge transfer, and culture has an effect on knowledge transfer.
Broadly, the findings of this study are instrumental in promoting employee development programs at Saudi Aramco because it improves their capacity to manage the organization’s problems (Law & Kamoche, 2015). Through the appreciation of the need to inculcate a culture that promotes knowledge sharing, the findings of this study are also instrumental in aligning individual goals with company objectives, thereby establishing a synchrony of purpose for the organization and the employees. More importantly, the workers of Saudi Aramco are in a position to benefit from the enhancement of job specific development. In comparison to the achievement of organizational goals, the managers of Saudi Aramco should take pride in the fact that the promotion of a culture of knowledge transfer would help in improving communication between older and younger workers, as well as increase the level of efficiency in the organization, including the improvement of work effectiveness. This benefit aligns with the improved correlation between the attainment of organizational goals and the expected human resource outcomes for the workers. Broadly, these outcomes set the stage for the formulation of list of recommendations for Saudi Aramco’s review.
Recommendations
Saudi Aramco should strive to develop a robust infrastructure that fills some of the knowledge gaps that exist between older and younger employees by infusing the five dimensions of analysis (critical activities, risk of loss, communication skills, culture, and knowledge transfer) in the organization’s human resource framework.
The firm should align its knowledge management practices with the overall organizational strategy to create good synergy between employee activities and operational strategies. Doing so will ensure that all employees “read from the same script,” thereby providing a common ground for different cadres of workers to interact and share knowledge freely (for the fulfillment of organizational goals).
Saudi Aramco should nurture a culture that is not only cost-effective in developing and retaining talent, but also proficient in preserving its institutional memory and storing or transferring the lessons learnt. These elements of analysis should be the checklists for the new culture.
Saudi Aramco should work to promote the development of trust among employees. More importantly, it should leverage a new culture that promotes trust between older workers and new employees. From this framework, there should be an established framework, which will act as a control mechanism where the organization’s implicit and explicit rules of engagement are properly defined. This recommendation is based on the understanding that most of the knowledge available at Saudi Aramco is implicit (if it was explicit, there would be no need for fostering knowledge transfer). Since the firm’s intellectual capital is tacit, there is a need to promote trust between younger and older employees.
Saudi Aramco’s processes for creation and transfer of knowledge in the organization need to transcend the micro process of organizational performance and accommodate aspects of its macro-environment. Stated differently, the process should also accommodate change management aspects of organizational performance by including “soft issues” about knowledge transfer.
Changes to the organization’s knowledge transfer processes should include both individual and organizational KT goals. Here, there needs to be a basis for forging a mutual understanding between senders and receivers of knowledge transfer.
Future Works
This study was developed from the backdrop of a gap in knowledge transfer between older and younger employees in Saudi Aramco. Emphasis was made to highlight the differences between the technical knowledge held by older employees, vis-à-vis those held by younger ones. Data was collected using surveys as the primary information collection technique. The aim of collecting data this way was to meet five main research goals of this paper. They included providing an inventory and catalogue of Saudi Aramco’s critical activities, determining the risk of loss of critical knowledge, skills and behaviors at the firm, preparing the organization to minimize knowledge gaps, establishing knowledge transfer relationships between knowledge providers and knowledge recipients, and developing knowledge transfer plans for identifying at risk knowledge. This study specifically focused on Saudi Aramco because, as highlighted in the first chapter of this study, the firm has a huge pool of employees waiting to retire. By focusing on this organization, findings that would enable Saudi Aramco to prepare for knowledge transfer were generated.
The findings of this study would enable Saudi Aramco to prepare for knowledge transfer, while the focus on this area of research will allow the organization to fill its knowledge gaps and skills. Collectively, the focus on KT presents an opportunity for the Saudi-based oil corporation to develop an infrastructure of knowledge transfer for its future posterity. Similarly, by adopting some of the recommendations outlined above, the company will be able to develop the skills of individuals for targeted or critical jobs. By doing so, Saudi Aramco will be in a position to improve its productivity and business performance. Similarly, using the findings of the study, the firm will be able to develop and train individuals for targeted or critical jobs. By doing so, it will be in a position to improve its productivity and business performance. However, future research should focus on the areas highlighted below.
Understanding the key attributes of older and younger workers, which often creates gaps in the attainment of operational synergy. Here, efforts should be attuned to understand the attitudinal differences, adaptation dynamics, and differences in belief patterns or values that make older and younger employees disjointed in their approach to work processes.
Increase the number of statements respondents are asked to find out whether the findings depicted in this study will remain true after the change. This recommendation stems from the fact that only 25 statements were used to explore the respondents’ views about the five dimensions of analysis. Thus, the informants could be asked more statements to find out whether they would still have the same views highlighted in this paper.
Knowledge management has emerged to be a dynamic topic that has multiple levels of assessment. Future research should also focus on understanding some of the “soft issues” surrounding knowledge transfer that would affect Saudi Aramco. This recommendation is stems from the fact that this paper largely relied on a quantitative assessment of the respondents’ views. In future, a study that mostly relies on subjective issues regarding knowledge transfer could be undertaken.
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Saudi Aramco is considered one of the largest producers of oil. The organization passed numerous transformations to become a global oil giant. Therefore, as a successful company, Saudi Aramco has a vast network of stakeholders that developed throughout history.
Saudi Aramco’s key stakeholders include the Saudi government, investors, suppliers, and customers. The Saudi government is the most important stakeholder as it finances the company and guides it through specific policies (Weijermars and Moeller, 162). Saudi Aramco also enjoys strong cooperation with various investors as they play an essential role in corporate development. The company attracts this stakeholder category with transparent conditions and various financial tools. It provides all the information regarding stock, bonds, dividends, and so further (Aramco Global). Having the necessary data, investors can plan their investments more accurately in terms of generating revenues. Besides, Saudi Aramco tries to attract new investors in response to climate change, encouraging them to fund projects related to water conservation or minimization of methane and carbon emissions (Aramco Global).
Finally, the company holds regular Assembly Meetings to share new information and strategic prospects with investors and shareholders (Aramco Global). Saudi Aramco offers its suppliers a convenient e-marketplace platform that allows these stakeholders to independently manage business interactions with the company (Aramco Global). SAP Ariba is the business-to-business network that simplifies the whole buying process (Aramco Global). Some of Saudi Aramco’s customers include big companies and small businesses that purchase various products such as ethane, asphalt, gasoline, and so further (Aramco Global). The company has a wide range of loading facilities and reliable channels to supply customers with the products (Aramco Global). As one can see, Saudi Aramco values its stakeholders and strives to create the most beneficial conditions to cooperate with them.
Saudi Aramco has a prominent history of its growth. It began in 1933 when Saudi Arabia and the Standard Oil Company of California concluded the Concession Agreement (Aramco Global). However, drilling began in 1935, before a thorough survey of the Saudi desert had been performed (Aramco Global). Success came in 1938 when commercial oil production was commenced (Aramco Global). In the late 40s, Saudi Aramco began to gather momentum by producing record-breaking volumes of oil (Aramco Global). After the Saudi government increased its interest in the company, it transformed from an oil producer and exporter into an integrated petroleum enterprise (Aramco Global; Weijermars and Moeller, 162). Nowadays, with the tendency to transition to renewable energy, Saudi Aramco has faced particular challenges.
The transition is a time and resource-consuming issue, thus, the company decided to focus on sustainability and privatization. In terms of sustainability, Saudi Aramco uses scientific approaches to develop new products. For instance, the organization plans to produce advanced plastics from carbon molecules that can be used instead of glass or steel in construction (Saudi Aramco, 7). Besides, as the company announces, this material can also be helpful in creating infrastructure for renewable energy (Saudi Aramco, 7). In view of this, the privatization of Saudi Aramco has become an option to create value and attract new investors (Weijermars and Moeller, 161). It has also been found that privatization can improve corporate financial performance until 2030 (Weijermars and Moeller, 165). Thus, the company strives to accommodate modern trends and simultaneously contributes to its success.
To conclude, Saudi Aramco had to pass a long way throughout history to become one of the world leaders in the oil industry. Although it has a huge network of stakeholders, it has faced challenges with the transition to green energy. Nevertheless, the company is always seeking new paths to develop further and prosper.
Works Cited
Aramco Global. Saudi Aramco. 2022. Web.
Saudi Aramco. Saudi Aramco Sustainability Report 2021: Energy Security for a Sustainable World, 2021.
Weijermars, Ruud and Moeller, Jonathan. “Saudi Aramco Privatization in Perspective: Financial Analysis and Future Implications.” Journal of Finance and Economics, vol. 8, no. 4, 2020, pp. 161-170.
The new economy is perhaps the most striking development in business evolution over the last decade. A competitive incentive has risen from the dynamic nature and velocity of the new marketplace for both business organisations and economies in general.
Companies are increasingly being required to reconcile and consolidate their business assets, in order to create sustainable value over time. In line with these developments, Saudi Aramco is at the forefront of transforming Saudi Arabia’s economy through leveraging of intellectual capital and knowledge management.
The following study seeks to determine the structure, nature and enactment of organisational informatics in Saudi Aramco. The organisation and management of organisational informatics in Saudi Aramco, as well as the supporting systems, are also highlighted in the study.
Ultimately, organisational capabilities resulting from organisational informatics such as innovation, and drivers of knowledge management in the organization are also illustrated.
The study’s ultimate objective is to establish how knowledge management affects the capabilities of Saudi Aramco, for instance, through an intellectual capital development and innovation.
The effect of the developed capabilities on the intention of the company entering the retail market should also become apparent.
The outcome also should indicate how this development is in line with the vision of transforming Saudi Arabia into a knowledge-driven economy, considering that the organization is a national oil company.
Saudi Aramco Organisational Informatics
Organisational Informatics Definition
Organisational Informatics refers to the analyses of social informatics, with a particular emphasis on business organisations (Kling, 2000, p.217). The primary participants in the case of organisational informatics are located within bodies that can be identified.
Organisational Informatics responds to several Information Science questions within business firms’. The responses include how people relate with one another, pursue, and utilise information within the organisation.
Saudi Aramco in a bid to harness various capabilities emanating from technology has embarked on a well-designed structure of organisational informatics.
In order to accomplish this strategic goal, Saudi Aramco pursues development of absorptive capacity, a factor inherent in the company’s information systems (Khursani, Bazuhair & Khan, 2011).
Absorptive capacity entails ability to utilise prior knowledge in recognising the value of new information (Ramiller & Swanson, 2003). In addition, absorptive capacity also involves assimilating and applying the information to the creation of new knowledge and capabilities.
Saudi Aramco Intellectual Capital and Knowledge Management Infrastructure
According to Khursani, Bazuhair and Khan (2011), Saudi Aramco aims at being a human enterprise based on knowledge. The basis of the company’s system is the development of human capital in the most effective and efficient manner possible.
Saudi Aramco boasts of extensive intellectual capital resources ranging from procedures and lessons learnt from operations. Trust, brand recognition and reputation, among other factors also constitute the company’s intellectual capital.
In order to respond to industry ever-changing needs, Saudi Aramco information management system is founded on three fundamental features of intellectual capital.
Saudi Aramco intellectual capital model is based on Talent, Teams and Technology, also referred to as the 3Ts (Khursani, Bazuhair & Khan, 2011). The concept of 3Ts corresponds to the fundamental components of intellectual capital, namely structural, relational and human capital.
According to Khursani, Bazuhair and Khan (2011), these aspects have been the most substantial drivers of Saudi Aramco’s past successes. The factors are also expected to be the primary drivers of future success and sustainability of the company.
The talent aspect of the model focuses on the development of the company’s workforce for future needs. Talent also referred to as human capital comprises of creativity, expertise, competency, capability, experience and certification (Khursani, Bazuhair & Khan, 2011).
The aspect of teams, also referred to as relational capital focuses on the development of networks and interactions. Technology component also known as the structural capital entails development of standards, procedures, databases, patents, among others (Khursani, Bazuhair & Khan, 2011).
Figure 1 below illustrates the intellectual capital model utilised in knowledge management within Saudi Aramco:
Source: (Khursani, Bazuhair & Khan, 2011, p.5).
The ultimate objective of the information management system used in Saudi Aramco is to develop as well as deploy the relevant intellectual capital initiatives. The outcome should be the attainment of total value for the company.
By recognising and attaining the full value of intellectual capital solutions, Saudi Aramco would be in a position to facilitate the transformation of the country’s economy. Saudi Arabia would be transformed from being a commodity (petroleum) to a knowledge-based economy for future growth.
The 3Ts forming the basis of Saudi Aramco knowledge management and information system also corresponds to three vital infrastructural components for maximisation of intellectual capital. The factors include technical, cultural and structural.
According to Kling (2000), knowledge management systems and processes must be based on infrastructure effective in leveraging the same. The systems should be able to store, transport and transform knowledge with respect to the needs of the organisation.
Saudi Aramco ShareK (Share Knowledge)
Knowledge combination and exchange in order to create new knowledge demands presence of intellectual capital or social capital. Intellectual capital here implies all the intangible assets that enable an organisation to carry out business operations effectively (AbdulKarim, 2010).
Saudi Aramco runs an important knowledge management system referred to as ShareK (Share Knowledge). The system, also known as share knowledge portal, is used in managing the intellectual capital of the organisation (Khursani, Bazuhair & Khan, 2011).
The system is a customised product of Microsoft SharePoint. Apart from facilitating knowledge management in the company, ShareK assists in managing and sharing information and reducing redundancy within the organisation.
According to Khursani, Bazuhair and Khan (2011), the customised knowledge management system of Saudi Aramco integrates several strategies. The strategies include furthering a collaborative environment and knowledge harvesting.
The system also facilitates the development of knowledge-based organisational culture (Kings & Marks, 2008).
By addressing the talent, teams and technology aspects of intellectual capital of the organisation, ShareK has led to improved employees’ performance, and also the attainment of operational excellence(Gold, Malhotra & Segars, 2001).
Figure 2 below illustrates the various functionalities of Saudi Aramco ShareK system:
Source: (Khursani, Bazuhair & Khan, 2011, p.7).
Saudi Aramco Company Capabilities Resulting from Sharek Knowledge Management System
According to Gold, Malhotra and Segars (2001), technology forms a very crucial element of the structural dimension required to mobilise intellectual capital, in order to create knowledge within an organisation.
Apparently, the linkages provide by Sharek in Saudi Aramco integrate information and communication systems within the body. Consequently, fragmented flows of knowledge and information previously witnessed in the company were eliminated, resulting in the much-desired integration (Abdulkarim et al., 2010).
The linkages also created by the system have assisted eliminate communication barriers, which occur naturally in various parts of the organisation. According to Ramiller and Swanson (2003), institutions need to invest in infrastructure capable of supporting diverse types of communication and knowledge aspects.
Technological dimensions essential for effective knowledge management in an organisation include collaboration, business intelligence, knowledge discovery and distributed learning.
Other aspects include opportunity mapping, knowledge mapping, and ultimate security (Gold, Malhotra & Segars, 2001). All these factors have been incorporated in Saudi Aramco’s ShareK.
The structure of ShareK also plays a vital role in how knowledge is managed within the organisation. According to Ramiller and Swanson (2003), organisational structures should be designed in a manner that allows for flexibility, encourages collaboration and sharing.
The flexibility facilitates communication between boundaries within the organisation and also across the company’s supply chain. The structure of ShareK (see figure 2) is such that the organisational leadership can share with knowledge communities, the government, and other stakeholders (Kings & Marks, 2008).
Knowledge management in Saudi Aramco integrates both social and technical perspectives in the development of the company’s capabilities. The retail industry the company intends to invest in, for instance, requires major social as well as technical considerations.
According to Pan and Scarbrough (1999), the work process in an organisation forms the basis of organisational informatics. The regularities and work structures, as well as the interactions of the employees in their conformity explicitly and tacitly, form the basis of know-how.
In designing methods and means of meeting the retailing objectives, compatibility between the internal and the external aspects of the operations are key. The company through the KM system has the capability of meeting the needs of customers, through the technical and social subsystems. In addition, the company’s competitive edge is enhanced.
According to Pan and Scarbrough (1999), organisations’ adaptations to emerging information technologies inevitably calls for the retention of technical and environmental relationships.
The relationship between these two subsystems can only be enhanced through a number of organizational changes. The management infrastructure in Saudi Aramco gives the organisation the necessary told analysing and planning for the task of entering retail the market.
Saudi Aramco KM system database encompasses competitive intelligence, product knowledge, process knowledge and customer knowledge. The knowledge repository provides the capability to understand better the potential industry and the best possible approaches for market entry.
Interactions in Saudi Aramco Knowledge Management Infrastructure
Figure 3 below further illustrates the various interrelationships between Saudi Aramco stakeholders, brought about the company’s knowledge management system:
Source: (Alsereihy, Alyoubi & El Emary, 2012, p.227).
The KM systems implemented in Saudi Aramco is accessible to all members of the organisation. The line managers have the greater responsibility of ensuring employees learn and share knowledge through the system since they are closest to the workers.
Business partners, suppliers and customers also play a vital role in Saudi Aramco KM. Stakeholders contacting the company are prompted to leave feedback, recommendations and complaints through ShareK.
The senior management, human resource, managers and other experts in the organisation then review ad address the information falling under their responsibility (Alsereihy, Alyoubi & El Emary, 2012).
Alsereihy, Alyoubi and El Emary (2012), postulate that numerous support mechanisms such as communities of practice are used to facilitate KM in Saudi Aramco.
Employees connect with their communities of interest and then share knowledge. Since the employees have fast access to various technologies, they quickly communicate their issues to the communities of practice.
According to Ramiller and Swanson (2003), one of the major hurdles to effective management of knowledge in an organisation is the organisational culture. Shaping the culture of the organisation constitutes the primary ability of the firm to manage knowledge.
Based on the concept of the 3Ts, employee’s interaction is encouraged through ShareK. Both formal and informal relationships and contacts are highly recommended, such that perspectives are shared by those individuals even not working together (Kings & Marks, 2008).
Saudi Aramco employees are encouraged to self-organise knowledge and engagement in communities of practise is highly recommended. Such interaction has fostered the development of solutions to existing and new problems. In addition, the process has enhanced both generation and sharing of knowledge.
Knowledge-based organisational culture has also been improved in Saudi Aramco through explicit communication of the company’s vision (Al-Dhubaib et al., 2008).
Apparently, Saudi Aramco aims at being fully integrated through optimum utilisation of intellectual capital. The goal is also in line with the goal to transform the Saudi economy into being knowledge-driven (Jarekji, 2011).
The 3ts of Saudi Aramco intellectual capital model embraced by Saudi Aramco reflects the primary structural capabilities necessary for effective knowledge management. Talent, teams and technology are supported through the company’s structure, technology and culture.
According to Gold, Malhotra and Segars (2001), knowledge integration depends on three aspects, namely efficiency, flexibility and scope of consolidation. Saudi Aramco ShareK provides with a framework that defines the processes and aspects of integrating knowledge.
Ultimately, the processes have enhanced the ability of the company in capturing, reconciling and transferring knowledge efficiently.
Drivers and Critical Success Factors for Knowledge Management in Saudi Aramco
Knowledge management is considered a very essential strategic practice in Saudi Aramco, in regard to enhancing the company’s competitive advantage.
According to Gold, Malhotra and Segars (2001), KM assists the organization in creating, identifying, documenting, storing and redistributing knowledge, insights and experiences gained by workers (see figure 3).
The success of KM in an organization is, however, determined by various factors internal and external to the organization.
According to Alsereihy, Alyoubi and El Emary (2012), some of the drivers of successful KM in an organization include business imperative and proper architecture and vision.
Other factors driving the success of KM in Saudi Aramco include the rich technology infrastructure in which all the employees are being familiarized with (Khursani, Bazuhair & Khan, 2011).
In addition, senior management support and appointment of knowledge officers have also immensely facilitated the development of Saudi Aramco organisational informatics.
Knowledge repositories, ontology, motivational aids, and training and education are also among some of the factors that can enhance or hinder KM in an organization.
The management of Saudi Aramco emphasizes on the need for a knowledge-sharing culture, since this can become a major impediment of KM. Other barriers to effective KM in an organisation include absence of employee’s motivation and ownership of the program.
In addition, staff defection, jealousies and fear by employees that if others learn their skills they might be expendable also constitute barriers to KM (Alsereihy, Alyoubi & El Emary, 2012). Factors such as the high costs and technical requirements of setting up and running KM systems poses a major challenge.
Other Factors Supporting Knowledge Management and Intellectual Capital Development in Saudi Aramco
Although ShareK is the main system facilitating KM and IC development in Saudi Aramco, other aspects of the organisation also seek the same results. Saudi Aramco corporate structure is one of these factors.
Saudi Aramco corporate structure encompasses a project performance optimization division, focused on best practices, value engineering, development, training and benchmarking. Figure 4 below illustrates Saudi Aramco’s project performance and optimization division:
Source: (Alsereihy, Alyoubi & El Emary, 2012, p.228)
Saudi Aramco project performance and optimization division contribute immensely to the development of the company’s intellectual capital. The division encompasses sub-divisions of best practices, value engineering and development, training and benchmarking.
Integrated with the organisation’s knowledge management system, majority of the company’s intellectual properties have had their origin in this division (Alsereihy, Alyoubi & El Emary, 2012).
Emphasizes on best practices, standards and best value, information and knowledge collected and shared in this division has been very significant in the development of Saudi Aramco.
When the performance optimisation organisational function in Saudi Aramco works closely with ShareK, the emerging potential is stupendous. Cooperation between the various systems enables a number of KM outcomes.
The results include customer satisfaction, employee development, dependable external relationships and ultimately organisational success. Such results provide the company with a competitive edge and capability to venture into the retail market more effectively.
The focus by organisations on technology alone to facilitate competitiveness is not adequate enough. Saudi Aramco is balancing the focus on technology with people and processes, in order to attain the desired effective knowledge management in the organisation.
According to Alsereihy, Alyoubi and El Emary (2012), the knowledge management solution in Saudi Aramco focuses on leadership, people and process management. The leadership aspect of the knowledge management system helps the organisation and the team leaders therein enhance the knowledge sharing culture.
The management has introduced a move to convert the tacit knowledge in the organisation into explicit knowledge for better utilisation by the workers. Team managers, for instance, are encouraged to record knowledge and learning in the system.
The process management aspect, on the other hand, focuses on better understanding of the organisational processes and workflows (Alsereihy, Alyoubi & El Emary, 2012).
The move ensures that work instructions, procedures and policies, as well as inspections and monitoring aspects are encompassed in managing the developed knowledge.
The aspect of people management in Saudi Aramco ensures that staff has access to recorded information, and that simple word searches effectively reveal the desired solutions.
The overall outcome of the company’s knowledge management is extremely positive. Problems which usually take hours or days to solve are easily taken resolved in a lesser amount of time.
Consequently, the organisation is a in a position to minimise the overall amount of time expended on repairs and maintenance, translating into immense margins for the company.
Conclusion
The hallmark of new economies lies in the ability of business organisations realising economic value derived from intellectual capital. Collection of diverse knowledge assets, information production and distribution, as well as affiliation, will also play a paramount role.
Managers have no choice but to realise the competitive necessity of making their organisations knowledge-based. Considering that Saudi Aramco is a government-owned entity, the company holds a critical position in facilitating the transformation of Saudi Arabia into a knowledge-based economy.
The current initiatives are in line leveraging the company’s intellectual capital and knowledge management attest to this commitment.
References
AbdulKarim, A., Al-Dhubaib, T., Elrafie, E., & Alamoudi, M. O. (2010). Overview of Saudi Aramco’s intelligent field program. In Paper SPE 129706 presented at the Intelligent Energy Conference and Exhibition, Utrecht, The Netherlands (pp. 23-25).
Al-Dhubaib, T. A., Issaka, M. B., Barghouty, M. F., Al-Mubarak, S. M., Dowais, A. H., Shenqiti, M. S., & Ansari, N. H. (2008). Saudi Aramco intelligent field development approach: building the surveillance layer. In Intelligent Energy Conference and Exhibition. Society of Petroleum Engineers.
Alsereihy, H., Alyoubi, B., & El Emary, I. (2012). Effectiveness of Knowledge Management Strategies on Business Organizations in KSA: Critical Reviewing Study. Middle-East Journal of Scientific Research, 12 (2): 223-233.
Gold, A., Malhotra, A., & Segars, A. (2001). Knowledge Management: An Organisational Capabilities Perspective. Journal of Management Information Systems, 18(1), 185-214.
Khursani, S., Bazuhair, O., & Khan, R. (2011). Strategy for Rapid Transformation of Saudi Arabia by Leveraging Intellectual Capital and Knowledge Management. Saudi Aramco Journal of Technology Winter 2011, 1-13. Web.
King, W. R., & Marks, P. V. (2008). Motivating knowledge sharing through a knowledge management system. Omega, 36(1), 131-146.
Kling, R. (2000). Learning about Information Technologies and Social Change: The Contribution of Social Informatics. The Information Society, 16(1), 217-232.
Ramiller, N., & Swanson, E. (2003).Organizing Visions for Information Technology and the Information Systems Executive Response. Journal of Management Information Systems, 20(1):13-50.
Pan, S., & Scarbrough, H. (1999). Knowledge Management in Practice: An Exploratory Case Study. Technology Analysis and Strategic Management, 11(3), 359-374.
Saudi Aramco is the most influential oil company in the world and the world’s largest producers of oil in the globe; it supplies more than ten percent of the global oil demand. Aramco is charged with the management of 98 percent of Saudi Arabia’s oil reserves which comprise of 25 percent of the total global oil reserve.
In the year 2006, Saudi Aramco extracted 8.9 million barrels of oil in one day. Saudi Aramco manages several refineries, international oil markets and domestic distribution of oil in Saudi Arabia. The company also owns several fleets of oil tankers and it also has distribution network of refineries.
Saudi Aramco operates ventures in petrochemical industry. The company has its headquarters in Dhahran and supplies natural gas to other Saudi industries. It has been consistently ranked as the number one oil producer since its establishment. This ranking is based on the size of its reserve, its output in terms of oil and natural gas, refining capacity, volume of sales, net income and asset base (Aramco 14).
Since 40 percent of Saudi Arabia’s Gross Domestic Product (GDP) comes from the petroleum sector and that oil accounts for 85 percent of Saudi’s export and 70 percent of the total government revenue, it is evident that the company is the core of Saudi economy. Its importance also emanate from its strong asset base.
The strong size of the company makes it an important asset in Saudi economy and thus it is in a better position to influence the policies and the strategies of Saudi Arabia kingdom. In the development of the company’s corporate plans, it should factor not only its commercial goals but also Saudi’s foreign policy requirements and the economic goals for the kingdom’s economic future (Jaffe and Elass 12).
Saudi Aramco plays an important role in Saudi society. The critical element of its mission is to play a redistributive function in the management of the Kingdoms oil reserves and assets. The company subsidizes the domestic fuel supplies as an act to benefit the consumers and the domestic industries. It is also the main employer and it provides training for the Saudi workers. Saudi Aramco facilitates industrial development (Jaffe and Elass 13).
What they own
Aramco is a government owned company and it is the world’s number one in outputs and management of crude oil reserves. Aramco specializes in exploration, production, and the distribution of crude oil, natural gas and petrochemicals.
The company runs five domestic oil refineries with the capacity to supply and meet the oil consumption demands of the kingdom. In 1993, it acquired the ownership and the interests of the Saudi Arabian Refining and Marketing Company (SAMAREC). Saudi Aramco has ownership control over the chain of hydrocarbon in Saudi Arabia through the transference of Petromin equity in its two lubricant companies.
Consequently, through its majority shares in Petrolube and Luberef, Saudi Aramco is responsible for the production and the distribution of lubricants in the country. Through its subsidiary Aramco Gulf Operations Company, Saudi Aramco took over the off shore oil and gas fields in the neural Zone from Arabian Oil Company of Japan. Saudi Aramco is the major oil supplier to Europe and US and controls Saudi Arabia’s oil and pipeline terminals (Valerie 47).
The company furthermore owns and operates the Master Gas System (MGS) which is instrumental in ensuring that the country is self-sufficient in fuel and gas. MGS is also among the largest exporters of gas liquids in the globe.
The company has substantial stake and interests in refinery and marketing activities in countries like USA, Korea, Japan and china. Consequently, through its affiliate company called Vela International Marine, Saudi Aramco has the ownership and the operation of the world’s largest fleet of tankers (Saudi Aramco World 42).
Position in Global System
Besides its pivotal role in the Saudi economy, Saudi Aramco has a strong influence in the global economy. It is the only oil firm from Saudi Arabia and also in the world that has a global sway in the production of oil.
Its possession of spare crude production capacity in the world gives it leverage over other oil companies and it is argued that it is in a position to replace the oil exports of a medium oil producing nation within few days and can also pull a significant volume of oil from the market to guarantee shortage. Its spare capacity is necessary for Saudi Aramco to assert its role as the global and regional leader and also as a reliable oil producer in the world in times of conflict and instability.
With the ever rising prices of oil and oil being an international commodity, the global influence of Saudi Aramco is at its peak. Consequently, since the company is the biggest oil producer in the world and due to the fact that it equipped with the weapon of spare oil production capacity, the company has an unmatched power in the international energy and financial markets.
This therefore implies that in order to understand the international corporate culture, the process of decision making and future strategies in the international oil market, its imperative for one to analyze the future of the energy market by using Saudi Aramco as a reference point.
For analysts to identify and make an evaluation as to whether or not Saudi Arabia will be in better position to produce oil that will be enough to meet the global needs, the operation and the position of Saudi Aramco must be first evaluated since it plays a critical role in the implementation of oil policies and the expansion of the production capabilities of Saudi Arabia (Mercel 32).
The strategies and the objectives of Saudi Aramco have been intentioned towards meeting the foreign policy requirements of the state. This was evident in the 1980s when the Saudi government and the royal family argued that an oil price war was a requisite for capturing the Saudi market share from emerging oil producers like Norway and United Kingdom.
The royal family also engineered a low price regime during the Iraq and Iran war as a measure of ensuring that the cash strapped Iran could be denied of resources to wage a strong war against Iraq. The politics of oil was also used as a measure to pressurize Soviet Union to stop its forays and influence into Afghanistan (Anderson 67).
Saudi Aramco has been at the apex of Saudi Arabia’s foreign policy priorities. In order to influence its foreign policy towards the United States and to influence the America public opinion regarding the US-Saudi relationship, Saudi Arabia has projected itself as the number one oil supplier to the US.
Furthermore, to assert its role as a strategic ally in the international coalition, through superlative efforts, Saudi Aramco replaced in less than three months the Kuwaiti and Iraqi oil production that was lost in the event of Iraq’s invasion of Kuwait (Saudi Aramco 3).
How they developed
Saudi Aramco developed as one of America’s largest overseas investment. Aramco is the symbols for Arabian American Oil Company and it was fully established as the company that was in charge of Saudi concession. It was founded by two of the world’s biggest oil companies namely the Texaco and Chevron.
After World War II, Aramco was reinforced by two other oil companies, the Exxon and Mobil. At its inception, Aramco was used by the US as an instrument to control oil (Vitalis 9). Saudi Aramco was established in 1933 through a concession with the standard oil cooperation of California. In 1988, the royal king signed a degree that led to the conversion of Aramco to Saudi Aramco and it was fully made a government owned enterprise and for profit.
Their revenues
Saudi Aramco has its own independent operating revenue. Through the kingdom’s ministry of finance, the company is allocated funds for its expansion and investment programs. Revenue wise, Saudi Aramco has retained the top spot and it has experienced an unprecedented profit due to rise in its revenues in the Organization of Islamic Conferences. Their increase in revenue is due to the increased demand of oil especially from the East Asian region (Europa Publications Limited 29).
Where they make their money
Saudi Aramco make their money primarily though the sale of oil and gas. Through their infrastructure, they also make money by drilling and exploration of oil. Saudi Aramco also makes their money through the selling of petroleum products and natural gas in Saudi Arabia and its subsidiaries in the world. The preciousness of oil as an international commodity is enough to generate substantial income for Saudi Aramco (Saudi Aramco 1).
Their activities
Among the activities of Saudi Aramco include exploration of oil, international marine shipping and production of oil. Saudi Aramco is an integrated company with tanker and refinery operations. The company also participates in the marketing of crude oil, natural gas, refined oil products and petrochemicals (Cordesman 468).
In exploration, the company has 104 fields of oil and gas reserve. Drilling is also another activity that is undertaken by Saudi Aramco. In shipping, it has contracted tankers together with their fleet to ship oil to other countries. Saudi Aramco particularly undertakes this activity of shipping through its subsidiary the Vela international marine which is responsible for shipping to North America, Europe and Asia continents where they have markets (Jones 23).
Conclusion
Saudi Aramco is a perfect example of how national oil companies, through their behaviors, objectives and strategies can serve foreign policy roles as well as domestic responsibilities.
Oil being an international commodity, it is indisputable that Saudi Aramco is one of the top ranking company in the globe and the fact that its operations are significant to create an artificial shortage in the international market makes it a critical player and fundamental actor in global affairs and an instrument of foreign policy for the Saudi government. Saudi Aramco undeniably gives leverage to Saudi government and state in the game of international politics.
Works Cited
Anderson, Irvine. Aramco, the United States, and Saudi Arabia a Study in the Dynamics of Foreign Oil Policy. Princeton, N.J: Princeton University Press, 1981. Print.
Aramco. Saudi Aramco World. New York, NY: Cengage Learning, 2000. Print.
Cordesman, Anthony. Saudi Arabia enters the 21st century. New York, NY: Greenwood Publishing Group, 2003. Print.
Europa Publications Limited. The Middle East and North Africa. New York, NY: Routledge, 2003. Print.
Jaffe, Myers and Elass Jareer. Saudi Aramco: national flagship with global responsibilities. RICE University, 2007. Web.
