1. Research Project: Schlumberger Limited
Marmi Maramot and Alexandre Le
MGMT 577, Professor Laura Whitcomb
June 5, 2009
Introduction
History
In 1912, Frenchman Conrad Schlumberger (pronounced shlum-ber-ZHAY) had
an idea to map underground rocks using electric currents. In 1923, he began to work with
his brother Marcel to conduct geophysical surveys in Europe, Africa, and North America,
and in 1926 they formed the Societe de Prospection Electrique to sell electrical-
measurement mapping services. In 1934 they founded Schlumberger Well Surveying
Corp. in Houston, and in 1940 the Schlumberger-Doll Research Center (SDR) was
inaugurated in Ridgefield, Connecticut.
The following years and decades saw the introduction of numerous tools and
techniques for use in the oilfield services industry as well as the acquisition of several
companies. In 1956 a holding company for all of Schlumberger’s businesses was set up I
Curaçao with the name of the company as it is known today, Schlumberger Limited. It
was listed on the NYSE in 1962.
The SDR was relocated from Connecticut to a newly built facility in Cambridge,
Massachusetts in 2006. This joined Schlumberger’s other main center for oilfield
research, located interestingly enough in another Cambridge (in England). Schlumberger
also operates research satellites in Russia, Norway, and Saudi Arabia.
Services
While Schlumberger is primarily an oilfield services company, it also deals in
natural gas and groundwater. Its services not only have to do with such physical, heavy-
duty aspects of the industry as drilling, but also very much with computer-based,
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2. consulting, and project management work. In all, Schlumberger offers a host of services
across fifteen distinct categories listed below.
Category of Service Example of Service
Artificial Lift Electric submersible pumps
Cementing Self-healing cement
Coiled Tubing Services Fracturing through coiled tubing
Completions Heavy oil recovery
Consulting and Data Services Interpretation and engineering services
Drilling Drillbit technology
Integrated Project Management Field management
Perforating Perforating gun system
Product Optimization Well integrity
Formation Evaluation In-situ fluid sampling and analysis
Seismic Services Seismic data processing
Software Reservoir simulation
Stimulation Tight gas stimulation
Subsea Subsea surveillance
Well Testing Downhole pressure measurement
Strategies
Focus on Research and Development
Schlumberger’s success over the decades has been fueled by its R&D, in keeping
with the founding brothers’ view that their work was first and foremost about scientific
inquiry and only secondarily about making money. In addition to its five major research
centers mentioned earlier, Schlumberger operates a network of 20 technology and project
centers around the world. Since its long-term strategy is to continue being the industry
leader in innovative technology that adds value for its customers, it has consistently
invested more in R&D each year than its competitors. For example, even though
Halliburton had greater revenues in 2002, Schlumberger spent more than twice the
amount on R&D ($512 million vs. $233 million for Halliburton).
After a boom period following the 1973 OPEC oil embargo which increased
worldwide demand for Schlumberger’s oil exploration and drilling services, the company
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3. experienced its first loss in 1986, $1.6 billion. A global recession and calls for greater oil
conservation resulted in an oil glut. But under the leadership of Euan Baird, who became
Schlumberger’s first non-French CEO that year, the company gradually recovered and
posted profits of $536 million and $639 million in 1994 and 1995. A key reason for this
turnaround was R&D investment, which was 37% higher during Baird’s tenure than
under the previous CEOs.
There were two new product introductions during this time that gave
Schlumberger an edge over the competition. One was an additive called EB-Clean that
was used to enlarge cracks to increase the flow of oil and gas through wells. This was
developed by Dowell Schlumberger, a 50-50 joint venture with Dow Chemical which
Schlumberger eventually fully owned when it bought out Dow’s share in 1993. The
other major innovation was a premium imaging system for potential well sites called
Maxis that was a vast improvement over previous systems. A rival system was
introduced by competitor Western Atlas, but Schlumberger one-upped them by coming
out with an Express version of the Maxis that was smaller and 50% less expensive to
operate.
Focus on People
While R&D is the main source of Schlumberger’s competitive advantage, the
company considers its greatest asset to be its 87,000+ employees of over 140 nationalities
working in about 80 countries throughout the world. This section of Schlumberger’s
people will begin with a discussion of the current CEO, then we will talk about one
method Schlumberger uses to transfer knowledge throughout this huge MNE, and finally
we will focus on one aspect of Schlumberger’s commitment to workforce diversity.
CEO Andrew Gould
Gould seems to strike a balance between the two oftentimes opposed
characteristics desired in a global manager: deep company experience but with the
capacity to grow and learn. Baird and Gould were both 30-year Schlumberger veterans at
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4. the time of their appointments, but whereas Baird was a geophysicist, Gould was an
accountant by trade and spent his first 15 years in finance. He moved up the ranks and
learned the oil part of the business along the way, even going through basic training in
well logging.
Gould’s career trajectory at the engineering-driven company is not the only
unusual thing about him. For a CEO of a large MNE, he is surprisingly down-to-earth.
He takes regular commercial flights and stays in an $80 per night hotel when visiting the
research facility in Massachusetts. Former Kuwait Petroleum CEO Nader Sultan
described Gould as “very open” and someone “you can have a good dialogue with.”
Soon after becoming CEO in 2003, Gould refocused Schlumberger on its core
oilfield services. While some people may have thought that Schlumberger should be
diversified in its holdings as a buffer against downturns in the oil industry, Gould saw
that such a strategy was actually damaging to the morale of oilfield employees, who saw
the company’s earlier acquisitions of non-oil-related companies as a vote of no-
confidence in the industry’s future. So, Gould sold off Schlumberger’s businesses that
dealt in semiconductors, electricity meters, smart cards, and all of the operations that
were part of its acquisition of IT firm Sema except for those having to do with upstream
oil and gas market activities. These divestitures freed up Schlumberger to increase its
ranks by a whopping 50%. 25,000 employees, most of them from developing countries,
were added during Gould’s tenure.
Knowledge Communities
Schlumberger came up with a way for its workers all over the world to share with
each other knowledge about their areas of expertise and use the strength of numbers to
influence corporate priorities. It came about when management saw that the scientific
and technical employees worked well in isolation, but this also created a problem in
terms of motivating them to grow professionally. So, Baird conceived of the idea to
invite employees to sign themselves up as a member of a group having to do with their
specialty, whether it be chemistry, well engineering, etc.
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5. The unique thing about Schlumberger’s “Eureka communities,” as they are
known, is that they are self-governing and members elect their own leaders. Nominees
had to be backed by at least one other member of the community and by their manager,
who granted them permission to devote a percentage of their time to work on the group.
For example, the leader of the 1000+ member rock-characterization community, a
geological engineer in Nigeria, spends 15-20% of his time on such things as organizing
conferences and workshops for the community, managing their own website, and
coordinating their subgroups. He claims that his community helped shape the carbonate
research agenda at the Saudi Arabia facility. Members of groups can also create an
online CV that they can post for the entire company to see on the Schlumberger intranet.
This has proven very popular, since official CVs were locked away in HR and so no one
apart from those who worked most closely with an employee could know much of
anything about him or her. More than 11,750 employees are members of one of 23
Eureka communities. Within these are 140 special-interest subgroups. Schlumberger’s
cost of running this operation? A relatively cheap $1 million per year.
Increasing Female Employment
Another strategy Schlumberger employs is to make a concerted effort in
recruiting and retaining female engineers. Diversity manager Jim Andrews explained
what the challenges were in this endeavor: “The reality is that women in almost every
country where we work are not attracted to field operational positions in large numbers.
Historically, the oil and gas industry has always had a very macho label associated with
it. This inevitably acted as a barrier and made it a less attractive career choice for many
women.”
Schlumberger’s gender diversity initiative, started in 1984, isn’t just about being
politically correct. In the 1970s there was a huge hiring wave of engineers, particularly
in the oil and gas industry. These workers would now be at or very near retirement age,
so Schlumberger has to find a way not just to replenish their ranks, but to do so in a way
that is sustainable in the long term. Andrews pointed out that “the workplace becomes
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6. more natural and more appealing to today’s graduating population when there is a
balanced workforce.”
The company’s efforts appear to be showing positive results. In 2007, female
engineers were recruited at a rate of 31%, up from 25% from the two years prior. And in
six years, the growth of women moving into their first management job was from 9% to
16%. However, Schlumberger still has a long way to go. For example, Sally Serenyi
was a physics graduate hired in 2007 as a field engineer working at well sites in Austria
and Hungary. The number of other women in her location? Zero.
Country-Specific Strategies
As mentioned before, Schlumberger has operations in about 80 countries. While
it is not feasible to go into details of its strategy in each and every one, we will discuss
four of them.
Oman vs. Singapore
These two countries exemplify how Schlumberger’s strategic approach differs by
country based on natural and human resources. Traditionally the Middle East has been a
rich oil source; in 2006 it was the 50th
anniversary of the first well the company drilled in
Oman. However, this area of the world is not so well-known for being at the forefront of
scientific knowledge. Therefore, one gets the sense when reading between the lines
about the celebration in commemoration of 50 years in Oman that there is a much higher
than normal level of appreciation and gratitude for Schlumberger’s presence in their
country. Consider the following statements: “During the coming years we will continue
to invest in our employees, providing opportunities to Omani graduates and training them
to perform to world standards.” – Said Al Adawi, General Manager for Schlumberger
Oman. “The Schlumberger strategy has always been to bring value to its Omani
customers by offering the latest state-of-the-art technologies.” – Zaki Selim, President of
Schlumberger Middle East and Asia.
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7. The resource situation is the opposite in Singapore. While this country is not a
good source of oil reserves, it does boast a highly-skilled, engineering-minded workforce.
Therefore, Singapore is a base not for drilling as in the Middle East but for oil and gas
equipment manufacturing, which requires a great deal of technical know-how.
Furthermore, Singapore has the infrastructure in place to support the industry for decades
to come. The business environment is cost-competitive and efficient, and there is strong
intellectual property protection. In 2004, Singapore established the Center for Offshore
Research and Engineering (CORE), and two of its universities introduced specialized
degrees in marine & offshore engineering and in offshore oil & gas technology for
mechanical engineers. These educational and research initiatives, in which Schlumberger
will very much play an active role, are especially geared toward discovering ways to
extract hydrocarbons from deeper and more complex oil and gas fields, expanding the
company’s capacity for future growth even while traditional places to dig for oil, the low-
hanging fruit so to speak, are drying up.
In comparing these two countries, one can logically conclude that Singapore is
superior to Oman as a place for Schlumberger to enjoy sustainable long-term success.
This is because Oman’s oil reserves will eventually become depleted, while Singapore’s
research centers and universities provide Schlumberger with a valuable resource that is
renewable – a steady stream of talented workers.
Russia
The case of Russia best illustrates the concept of polycentrism. Schlumberger had
bought three local oilfield services companies and brought their work up to its high
standards, but apart from doing that, these local subsidiaries have kept their culture and
national identity intact. Their company names were not changed to Schlumberger, the
workers’ uniforms don’t say Schlumberger, in fact there is no indication whatsoever that
these outfits are owned by a big foreign MNE. It would actually have been detrimental
for Schlumberger to impose its Western ways in Russia, since the local Russian workers
filled in a knowledge gap ironically created by Schlumberger’s hallmark emphasis on
high tech. In other words, sometimes you really need the old-school skills that only the
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8. natives with years of experience could bring to the table. Also, while there is a
Frenchman installed as chief of Siberian operations, when it comes to meeting with
visitors and clients, he gladly steps aside and lets the very entertaining local manager, a
former driller named Victor Soldatov, take over.
Mexico
Schlumberger has been stealing business away from the Big Oil companies
(Exxon, BP, Shell, etc.) largely due to two tactics. One is that it is willing to work on a
fee-for-service basis; it is not interested in having ownership stakes in oilfields. The
other is that Schlumberger is able to garner exclusive contracts with state-owned oil
companies. In fact, the two approaches are related: the national companies, many of
which are in developing countries, do not want Big Oil having any share of the profits
from their oil wells. They want to retain complete control of their reserves and just need
to hire a company that can provide the necessary services to get the oil pumping.
Schlumberger’s contracts with state-owned oil companies include Saudi Arabia’s
Aramco, Russia’s Gazprom and Rosneft, Malaysia’s Petronas, and Romania’s Romgaz,
to name a few.
But Schlumberger’s relationship with Mexico’s Pemex has been particularly
lucrative and mutually beneficial. Mexican law prohibits foreigners from owning oil
reserves in the country, which works out perfectly for Schlumberger since, as previously
mentioned, the company’s business model is to provide services for fixed fees.
Additionally, Mexico has historically been dependent on imported natural gas, so when
Schlumberger was able to get quite a lot of it for them by drilling more than 1,000 wells
in a basin south of Brownsville, Texas over the last five years, the company was
handsomely rewarded with another contract to start drilling in other regions of Mexico
for $1.4 billion. Finally, Schlumberger provides the full range of services required in
such monumental undertakings, such as bureaucratic time-consuming ones like securing
the necessary permits from environmental agencies and local law enforcement.
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