The fundamentals of joint ventures

Posted by By at 23 January, at 11 : 38 AM Print



Pooling resources can mean lower risk, greater access to funds and increased market share, enabling entry into new markets. Given this, it’s no wonder some companies pursue joint ventures as success strategies.

For those looking for growth while needing to manage risk, a joint venture is an excellent solution. They offer the opportunity to leverage the specific, complementary strengths and qualities of two organisations, while cutting investment costs. Intellectual property, knowledge base, monetary funding and assets are all able to be shared between partner organisations when a joint venture is on the table.

While joint venturing may sound like the perfect solution, there are many wellknown reasons for failure: lack of control and clarity of purpose, incompatible partnering organisations, poorly thought-out strategies and unsuccessful management of people.

According to the Harvard Business Review, one of the biggest challenges facing joint ventures is creating a cohesive, high-functioning organisation between the two parent companies. Shared values and appropriate culture and leadership underpin other significant factors like strategic alignment, governance systems and economic interdependency.

Strategic alignment across joint organisations is crucial to success. Initially, each of these entities will come with their own goals, shareholders, values and assets. It is crucial that, especially in the launch phase of the joint venture, these independent interests are addressed and properly integrated. Dismissing incongruent approaches will most likely mean conflict as the project progresses. This is particularly highlighted in the soon-to-be-released ISO 5500X suite of standards for asset management.

Another obstacle is establishing a governance system that shares control between parent companies, and creates clear structure and guidance for decisionmaking. This system should turn the goals of the joint venture into technical and financial processes, plans, activities and tasks, by applying a systemic approach to decision-making. In doing so, the system supports competent employees in making timely and accurate decisions by providing a transparent, traceable and logical link between decisions, activities and tasks of employees to the objectives of the venture.

The economics of a joint venture is a delicate balancing act. The aim in creating a new venture project is to avoid duplicating services, material resources, people and financial capital. Getting this balance right is key to a successful joint venture. Specifying the respective contribution of each parent company allows for a stable and successful structure, without gaps or clashes when it comes to resources.

An exemplary case of a joint venturetype relationship hitting all these marks is K2’s involvement in the North Rankin Redevelopment Project (NR2). NR2 is a world-class mega project, established by the North West Shelf (NWS) joint venturers to recover remaining low pressure reserves from the North Rankin and Perseus gas fields in the NWS off Western Australia. In October 2008, Woodside Energy Ltd signed a contract with K2 Technology Ltd to provide engineering services to develop an optimised best-in-class asset management system. Woodside, the largest independent Australian oil and gas company and operator of the NWS Project, plays a key role in supplying energy to the Asia-Pacific region, while K2 has been operating in the Operability, Reliability and Maintainability (ORM) field of the resources sector and particularly the oil and gas industry since November 2000.

The focus of the senior management of K2 and the Woodside asset management team was to take this overall project brief and develop an integrated team which could develop a best in class asset management deliverable for the NR2 project, using Woodside’s existing processes and systems, but also by improving on those processes and systems where appropriate. Although not a legal joint venture in the traditional sense, the K2 and Woodside team leaders worked closely together to take their senior management’s mandate and build a team which could deliver on the expectations of both companies. This meant an integrated team approach and clear team structure, with team members responsible for dedicated sections of the deliverables, and review and implementation of previous lessons learnt from both companies.

To begin with, a committed leadership team together with a strong asset management culture from the two organisations created a positive team climate where quality results were delivered on time and on budget.

Fundamental to the success of this element of the project was the integrated team approach which K2 and Woodside agreed and developed from the outset. K2 brought their processes and experience from other similar projects which allowed an inbuilt continuous improvement process to be adopted.

A well-structured implementation and communication plan and a positive team spirit and environment were developed at the early stage of the project. Innovation and challenges to the status quo were encouraged and supported by the leadership team. Together with competent and supportive team members, professional client/ contractor relationships and a continuous improvement mindset, rigorous quality assurance and quality control audits ensured that results were delivered on time and budget.

The NR2 Project depends on reliable and effective management and execution processes at every stage of the project life cycle…

 

 

Excerpted from an article originally published in the February/March 2014 issue of Think & Grow Rich Inc. magazine. If you are a subscriber to Think & Grow Rich Inc. magazine, you will receive this article in your February/March 2014 issue of TGR. If you are not a subscriber, click here to subscribe.

 

Opinion, The Guv'nor


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