Org Analysis Midterm Paper - Sample 1

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Organizational Analysis of ExxonMobil in St. John’s Organizational Theory Midterm Paper Submitted by: Meaghan Larkin Submitted to: Louise Harris Date: October 25 th , 2020

1 Introduction The organization chosen for analysis is ExxonMobil, a large multinational corporation in the oil and gas industry. ExxonMobil has operations in Ontario, Alberta, New Brunswick, and Newfoundland, with its Canadian subsidiary Imperial Oil headquartered in Calgary. Overall, the organization has approximately 75,000 employees worldwide (ExxonMobil Corporation, 2020), while the number of employees in St. John’s is around 300 -400 people with around 40 employees in the Controllers department. The h eadquarters for ExxonMobil globally is in Irving, Texas, while the Canadian hub is centered in St. John’s (ExxonMobil Corporation, 2020). For this paper, the scope of analysis will be focused on ExxonMobil in St. John’s, particularly the Controllers department. Environment Resource Dependence Theory ExxonMobil in St. John’s focuses on the exploration and extraction of crude oil from the ocean, and then either sells the oil as is or it is transferred to another part of ExxonMobil for further processing. The Resource Dependence Theory states how much power an organization has over its resources to maximize power and profit. ExxonMobil has limited power over its main assets in St. John’s : Terra Nova, Hebron, and Hibernia. The nature of the oil and gas industry is that multiple parties will invest in an offshore platform; thus, major decisions must be made in consensus with all parties. This is an interesting arrangement as the co-partners of Hebron, for example, include Chevron and Suncor Energy, who are also major competitors to ExxonMobil, therefore making it difficult to maximize profit and power (Hebron Project, 2015). However, each offshore platform has an operator or main partner, and ExxonMobil operates both Hibernia and Hebron. While ExxonMobil shares the control over its main assets, the organization either Makes or Buys its resources. For example, ExxonMobil is the main operator of Hibernia and aided in the development of the Hibernia oil fields; furthermore, ExxonMobil is undergoing exploration efforts in offshore Newfoundland (CBC News, 2019). However, Suncor Energy is the main operator for Terra Nova, leading ExxonMobil to “buying” that resource , or forging an alliance. Thus, ExxonMobil engages in horizontal integration, where control is being shared with all the assets. To conclude, ExxonMobil has limited power over its resources and must share its resources or power with other competitors in the market.

2 Stakeholder Analysis The stakeholder analysis for ExxonMobil in St. John’s includes many external parties as oil and gas is a highly regulated industry with many suppliers and partners. The most notable external stakeholders are regulators and partners. Please see Appendix A for a visual overview of ExxonMobil’s stakeholder analysis and a description for the rest of the stakeholders. Regulators : Given the exploitative nature of the oil and gas industry, ExxonMobil is regulated both provincially and federally. The Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) regulates ExxonMobil’s offshore platforms; this is a joint provincial and federal board to oversee the operations of oil and gas in Newfoundland (Government of Newfoundland and Labrador, n.d.). Furthermore, since ExxonMobil is a publicly traded company, the Ontario Securities Commission is also a regulator (Ontario Securities Commission, 2017). Partners : ExxonMobil is associated with numerous partners due to its involvement in multiple joint ventures. Please see the figure below for a list of the main partners (Hebron Project, 2015; Hibernia, n.d.; Antle, 2016): Figure 1: ExxonMobil’s Partners in St. John’s Hebron Hibernia Terra Nova Chevron Chevron Suncor Energy Suncor Energy Suncor Energy Equinor Equinor Canada Canada Hibernia Holding Corporation Husky Oil Nalcor Energy Murphy Oil Murphy Oil Equinor Mosbacher Operating Ltd Potential Change in the Environment ExxonMobil’s environment in St. John’s is ever -changing. With the price of oil fluctuating, the large provincial deficit of Newfoundland and Labrador, and the uncertainties caused by COVID-19, ExxonMobil is undergoing drastic change. Decline in Oil Prices: The steep decline in oil prices, mostly caused by COVID-19, has resulted in the halt of drilling at Hibernia for as long as 18 months in order to save money (Roberts, 2020). This

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3 drastically changes the environment for ExxonMobil, as one of their assets is not operating at full capacity. This also resulted in a large number of layoffs for the employees that work on the platform (Roberts, 2020). Newfoundland’s Budget : The economy of Newfoundland is in a difficult situation as the provincial budget projects a $1.84-billion deficit (Smellie, 2020). This is an incredibly large number, and the deficit may affect employment and growth opportunities for an oil and gas company such as ExxonMobil. COVID-19 : The oil and gas industry has been struggling ever since the outbreak of COVID-19. Consequences of the virus include a decline in oil prices, project delays and suspensions, the delay of the Bay du Nord project, and the review of the West White Rose project (Smellie, 2020). Luckily, the federal government released $320 million to aid Newfoundland’s oil and gas industry, including ExxonMobil (Smellie, 2020). Social Structure Structural Contingency Theory Dimensions Based on the structural theory dimensions discussed below, ExxonMobil in St. John’s, notably the Controllers department, is regarded as more of a mechanistic organization, where there are many processes in place and power resides with management. Please see Appendix B for the other structural contingency theory dimensions. Integration: The level of integration within the Controllers department is low. This is mainly due to the set hierarchy in the department, as well as the large number of rules, procedures, and schedules that dictate the tasks of virtually every role. There are no liaison roles or task forces, and rarely any cross functional teams. Furthermore, there is a lack of direct communication, as the line of communication strictly follows the hierarchy; for example, a royalty analyst will not likely have any communication with the manager of accounting operations, instead the royalty analyst will communicate with the joint interest supervisor, who will then communicate with the manager. Centralization & Decentralization: The authority to make decisions resides at the top level of management, mainly the manager and the supervisors. It is common for employees within the Controllers department to aid in gathering information for a decision, but it is always a member of management that has the final say. The responsibility of the results of decisions is also centralized within management.

4 However, accountability for certain tasks and minor decisions are delegated to the leads of each teams. Overall, the concentration of power is within management, meaning the Controllers department is centralized. Formalization: Job descriptions are followed very closely in the Controllers department, leaving employees with little freedom or discretion for other activities. Authority is delegated based on position and control is dictated by where one’s position falls within the hierarchy of the department. In addition, management has control over all tasks and decisions, with little power left for employees regarding their own position. Overall, formalization is high and vertical within the Controllers department. Assessment of the Effectiveness of the Social Structure – Modern Perspective & Theory Through the modern perspective, the organizational form of the Controllers department within ExxonMobil St. John’s follows a divisional form, where the department is broken into divisions performing separate tasks for different purposes (please see Appendix C for the organizational chart). This organizational form works well for the Controllers department given it is mechanistic in nature and tends to follow many processes and the hierarchical structure. As well, spreading the tasks of the assets (i.e., Hebron and Hibernia) allows specialization of positions which follows the mechanistic nature of the Controllers department; for example, one person is focused on the royalties for Hibernia while another is focused on the operational costs of Hibernia. Thus, the organizational form matches well with the social structure. While analyzing the organizational structure of the Controllers department, the theory of organization lifestyles by Larry Greiner is applicable and relevant. According to Greiner ’ s theory, an organization goes through different life cycles, similar to a human being. Given the long history of operations in Newfoundland and the formal processes in the Controllers department, the formalization phase is the most suitable. The formalization phase also includes bureaucracy, which consist of rules and the power residing within management. The formalization theory matches with the current state of the social structure, where the Controllers department is very structured and routine.

5 Technical Structure Technical Complexity Under Woodrow’s technical complexity theory, the Controllers department would follow the characteristics of continuous process, with hints of mass and large batch type. The characteristics of the continuous process include automated procedures where employees monitor the processes; in the Controllers department, many of the tasks are automated to a certain point and the main role of each position is to note any irregularities while inputting information into a standardized template. However, the Controllers department follows more so the structural characteristics of the mass and large batch type, as control is centralized within top management, the structure is mechanistic, and many of the tasks are automated and predictable. Therefore, the Controller department is categorized somewhere in between mass and large batch type and continuous process type. Technological Interdependence According to Thompson’s technological interd ependence theory, the long-linked category is the most suitable for the Controllers department. For example, most tasks follow work-day deadlines, where each task has a very specific deadline because one employee’s output is the input for another employee’ s task. For example, calculating the cost of sales for Hibernia is the role of one person in the joint interest group, and that cost is an input variable for a royalty lead calculating how much royalty is owed to the province. Therefore, all tasks (i.e., inputs and outputs) are standardized and follow set procedures, and there are many rules and controls in place to ensure the efficient flow of tasks. Task Variability & Analyzability Continuing with the discussion of the last section, many tasks are routine due to the standardization of processes. In agreement with Perrow’s task dimensions, routine tasks suggest low variability, meaning a low number of exceptions, and high task analyzability, meaning how well-documented methods are for handling exceptions. The tasks in the Controllers department are highly routine, following a set procedure each month and work-day. The number of exceptions is seldom as the accounting behind ExxonMobil’s operations are consistent on a monthly-basis. However, when there are exceptions, there are rules or

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6 practices in place to handle them which can be found in the Certified Professional Accountants (CPA) handbook or by referencing other similar situations handled elsewhere in the company globally. Assessment of the Effectivenes s of the Controller’s Department’s Technical Structure – Modern Perspective & Theory According to the modern perspective, technology provides value to the organization. The use of technology, which includes processes and knowledge, adds tremendous value and efficiency to the Controllers department. For example, the vast number of processes in place in the Controllers department ensures that all tasks are completed correctly and timely, allowing other people to then complete their tasks. In addition, given that most employees are CPAs, their knowledge of accounting ensures that ExxonMobil is complying with accounting procedures and all tasks are completed accurately. Overall, technology plays a major role in the Controllers department and adds value to ExxonMobil. The modern theory of technology encompasses Woodrow ’ s technical complexity, Thompson’s technological interdependence theory, and Perrow ’ s tasks dimensions. The technical complexity of the Controllers department suggests that many tasks are automated, and the structure is mechanistic as opposed to organic, while technological independence confirms that the Controllers department is long- linked, as the tasks flow between employees following set processes. Finally, task variability and analyzability suggest that the tasks in the department are routine. After analyzing all aspects of the technical structure, the Controllers department is concluded to be a structured department with set processes that dictate the flow of tasks. Summary Overall Assessment of the Organization The ability for ExxonMobil in St. John’s to thrive within the next 5 years is moderate -to-low. This is mainly due to the rigidity of the social and technical structures of the Controllers department mixed with the ever-changing external environment. While the social and technical structures match because they both promote routine within the organization, these two structures do not match the environment. For example, the oil and gas industry is currently undergoing major changes, given the effects of COVID-19, decline in oil prices, and the province’s lack of power to provide resource s for companies like ExxonMobil.

7 A few of years ago, the oil and gas industry in Newfoundland was thriving; today, there are many uncertainties on what the future holds for the industry. Given that the environment for ExxonMobil is uncertain, the Controllers department is misaligned because their social and technical structures promote routine situations, which is not the case now for ExxonMobil. Thus, the Controllers department should aim to adapt to complex and nonroutine situations and promote a more organic organizational form where independent thinking and creativity are supported. For ExxonMobil to survive the slash in oil prices and the consequences of COVID-19, the Controllers department should prepare for more irregular circumstances, and alter their social and technical structures accordingly. Lessons Learned from Analyzing the Controllers Department of ExxonMobil – St. John’s After assessing the organizational design for the Controllers department, I learned that not all departments within an organization are designed similarly. For instance, while the Controllers department is very structured, the Exploration department is likely comprised of cross-functional teams and is more organic in form to promote creativity. For example, engineers from different backgrounds, geologists, and accountants would likely be on a team together for exploration. I also learned that organizational design takes into account many different components of theory to come to a conclusion, and an in-depth analysis of each component is required to fully understand the organizational design of a company. To truly assess an organization, one should consider the environment, social structure, and technical structure and how effective each component is for the organization. For example, while social structure might be effective for an organization, it may not match the environmental component. This in-depth analysis is useful for organizations to determine their viability for the years to come.

8 References Antle, R. (2016). Terra Nova project partners sue over royalty calculations. https://www.cbc.ca/news/canada/newfoundland-labrador/terra-nova-royalty-calculations- supreme-court-1.3450450 CBC News. (2019). Equinor, Exxon given environmental go-ahead for exploratory drilling offshore. https://www.cbc.ca/news/canada/newfoundland-labrador/exxon-equinor-get-go-ahead- exploration-1.5102409 CNN Business. (2020). Exxon Mobil Corporation. https://money.cnn.com/quote/shareholders/shareholders.html?symb=XOM&subView=instituti onal ExxonMobil Corporation. (2020). 2019 annual report. https://ir.exxonmobil.com/static-files/cbe9b88a- c23b-43e4-b059-8aa9405596b2 Government of Newfoundland and Labrador. (n.d.). Oil & gas. https://www.gov.nl.ca/iet/royalties/oil- gas/ Hebron Project. (2015). Co-venturers. https://hebronproject.com/project/cov.aspx Hibernia. (n.d.). About Hibernia. https://www.hibernia.ca/ NOIA. (2020). Member profiles. https://profiles.noia.ca/member-profiles Ontario Securities Commission. (2017). Securities law & instruments – ExxonMobil Corporation. https://www.osc.gov.on.ca/en/SecuritiesLaw_ord_20170330_216_exxon.htm Roberts, T. (2020). Hibernia drilling to stop for as long as 18 months as cost-saver, but production will continue. CBC News. https://www.cbc.ca/news/canada/newfoundland-labrador/hibernia- drilling-halt-1.5525226 Smellie, S. (2020). Newfoundland and Labrador budget projects $1.84-billion deficit. Global News. https://globalnews.ca/news/7369040/nl-projects-1-84-billion-deficit/ VOCM. (2020). Increase in gas prices predicted tomorrow. https://vocm.com/2020/04/08/increase-in- gas-prices-predicted-tomorrow/

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9 Appendix A Overview of the Stakeholder Analysis Description of the Stakeholder Analysis Investors : ExxonMobil Canada is a subsidiary to ExxonMobil, which is publicly traded on a stock exchange. According to CNN Business, 52.89% of investors are institutional investors, including groups such as the Vanguard Group and SSgA Funds Management (CNN Business, 2020). Therefore, hundreds if not thousands of people are investors in ExxonMobil. Unions : Unifor Local 2121 is a union comprised of workers on Hibernia’s platforms. There are no other unions in ExxonMobi l operation’s within Newfoundland. Suppliers : ExxonMobil has numerous suppliers, providing goods and services ranging from office supplies, helicopter flights, to contracting specialized engineering services on the platform. Some notable suppliers

10 include Aker Solutions, Atlantic Offshore Medical Services, K&D Pratt Group, KPMG, and PAL airlines (NOIA, 2020). Creditors : ExxonMobil has likely received loans from creditors, and this information would be discussed in more detail in the annual reports. Possible creditors in Newfoundland and Canada may include the Newfoundland and Labrador Credit Union, CIBC, Scotiabank, etc. Competitors : Given the large capital requirements and complexities of the oil and gas industry, there are few competitors. However, these few competitors are also large multinationals with a broad portfolio. The notable competitors in the St. John’s area include Suncor Energy; Husky Oil; Equinor; and Chevron. Community/Public : ExxonMobil’s involvement in the oil and gas industry l eads to many environmental consequences, such as pollution and damage to the ecosystem. This directly impacts the residents of Newfoundland and the rest of Canada. Trade Associations : A distinct trade association is the Newfoundland and Labrador Oil & Gas Industries Association (NOIA). This association lobbies for oil and gas in Newfoundland and organizations involved in oil and gas, like ExxonMobil, are sponsors of the association (NOIA, 2020). Other associations include Canada’s Energy Citizens and The Canadian Association of Petroleum Producers (CAPP). Customers : Since ExxonMobil in St. John’s simply produces and extracts the oil, the customers are limited to refineries or other subsidiaries of ExxonMobil that can refine the oil elsewhere in Canada. Therefore, likely customers are Imperial Oil in Alberta and Ontario, which would purchase the oil from St. John’s and refine it so it can be sold to the public. Analysts and media : There are numerous analysts and media involved with ExxonMobil in St. John’s. Media in St. John’s includes the Telegram, CBC, VOCM, and NTV, while national media that may cover topics such as oil and gas include CBC, CTV News, Global News, National Post, and Huffington Post. Analysts may include environmental analysts that release f indings on ExxonMobil’s environmental impacts in Newfoundland, as well as organizations that analyze and predict the price of oil, such as the Consumer Group for Fair Gas Prices (CGFGP) (VOCM, 2020).

11 Appendix B Structural Contingency Theory Dimensions Differentiation: In the Controllers department, there are numerous levels of hierarchy. For example, an entry-level accountant will report to a lead accountant, who will report to their supervisor, who will report to the manager of accounting, who will then report to the Controllers department in Calgary. As described, there is a clear line of reporting relationships within the Controllers department, and there is often little communication outside this hierarchical design. The Controllers department is also highly departmentalized; for example, there is a business controls group, a project accounting group, a group for Hibernia, a group for Hebron, and a joint interest group. It is also common for groups to be further divided – the joint interest group, for instance, has different employees in charge of doing the royalties for Hebron, Terra Nova, and Hibernia. The span of control in the Controllers department is limited, as a small number of employees will report to their supervisor, who will then report to the manager, etc. As a result, ExxonMobil’s Controllers department in St. John’s is a tall and wide organization , which is high horizontal and high vertical differentiation. Standardization: The tasks and processes within the Controllers department are highly regulated. Most employees simply follow detailed procedures to complete all their tasks, thus leaving little room for judgment or independent thinking. Therefore, standardization is high within the Controllers department. Specialization: Work is divided based on authority in the Controllers department; this is mainly because most employees are CPAs, therefore all employees possess the same capabilities and skills to complete most roles. Therefore, roles are authority-based, where roles are assigned based on authority to perform a task and not expertise.

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12 Appendix C Organization Form – Controllers Department, ExxonMobil (St. John’s )

Org Analysis Midterm Paper - Sample 1

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