Fluor Canada Ltd., Managing for a Global Strategy.
Fluor Canada, Ltd., Managing for a Global Strategy
Bruce D. Hill
ECBU 581, Managing in a Global Economy
Instructor: Elizabeth Glynn, M.I.M.
November 1, 2003
Fluor Canada, Ltd., Managing for a Global Strategy
Introduction
The scope of this paper is to look at how Fluor Canada, Ltd., will be looking to further its development towards implementing a transnational strategy. We will begin by looking at how Fluor Canada, Ltd. has evolved to become one of the leading subsidiaries of the Fluor Corporation. By observing how it has developed its inter-company collaboration, improved its globalization of markets, and its overall globalization strategies we will be able to follow this evolution.
Brief History of Fluor Canada, Ltd.
Fluor Corporation began operating in Canada in 1949. Its first foray was a $4000.00 modification of the Co-op refinery in Regina. Over the next 24 years, Fluor grew its client base as well as scope of services in Canada through its U.S. operations. Fluor Canada was officially incorporated in 1955 although no permanent headquarters was established there until 1973. As stated by Bartlett and Ghoshal (2000) in Transnational Management, "In the earliest stages of internationalization, many MNC managers ...think of the company's overseas [different country] operations as some kind of distance outpost whose main role is to support the domestic parent company in different ways such as contributing to incremental sales..." (p. 11). They further go on to say, "This is what we label as the international strategic mentality" (p. 11). Therefore, Flour Canada, Ltd. as it is known today was developed by Fluor Corporation with the international mentality.
According to Business in Calgary (1998) periodical, "...the office [established in 1973] was now an independent company with the ability to offer a broad range of engineering, procurement, and construction services" (p. 55). With this independence, this change is the beginning of the Canadian operations shift from an international mentality to a multinational mentality as evidenced by Bartlett and Ghoshal (2000). They state, "A multinational strategic mentality develops as managers begin to recognize and emphasize the differences among national markets and operating environments.... In companies operating with such a multinational mentality, managers of foreign operations tend to be highly independent entrepreneurs... " (p. 11). Because of this independence, Fluor Canada, Ltd. was in an excellent position to take advantage of the burgeoning oil boom in Canada. As a result, they enjoyed unprecedented growth. However, during the energy crisis of the 1980s, they suffered extensively and had to cut payroll by 80%. From that period through today, Fluor Canada has diversified its services and scope of business in several areas. Today they have 1200 employees and have revenues of 1.2 billion per year. They have also incorporated many internal changes in this period in an attempt to reach a transnational mentality. We will now look at some of those changes.
Inter-company Collaboration
As stated in Transnational Management (2000) the authors offer several challenges for Multinational Corporations (MNC) to elevate their strategic mentality to transnational. They state in chapter 6, Creating and Leveraging Knowledge: The Worldwide Learning Challenge:
In an environment in which the ability to develop and rapidly diffuse innovation around the world is vital, offshore subsidiaries must act as the sensors of new market trends or technological developments wherever they occur; they must be able to attract new talent and expertise on a worldwide basis, tapping their knowledge to develop creative responses to the emerging opportunities and threats; and they must be able to act collectively with other subsidiaries to exploit the resulting new products and initiatives worldwide, regardless of where they originated. (p. 618)
In order to achieve this critical attribute, an MNC must have an outstanding IT system in which all levels of management, cross-functional teams, national subsidiaries, and international subsidiaries as well as the parent company can collaborate in all areas.
Two critical competencies are vital factors in becoming a transnational MNC, economies of scope and becoming a learning organization. Without this inter-company collaboration, neither can be achieved. To achieve economies of scope require subsidiaries to have access to knowledge that has already been learned at other subsidiaries, which can be used to accomplish the task at hand without having to invent the process that has already been developed elsewhere within the company. This knowledge access allows employees to work as efficiently as possible. In order for a MNC to compete at the global level-and be successful-requires the most efficient service and/or product production possible. If an MNC does not become a learning organization-a factor critical in staying ahead of the competition-it will loose revenue as well as market share which could be its ultimate demise.
According to Fluor Canada's website (2003), Fluor Corporation has more that 50 offices and locations on six continents. They employ over 17, 000 professionals and 23,000 skilled workers (1). With a knowledge base of this many individuals, Fluor must incorporate an IT system to tap into it. They have begun to do just that. Mark Crincich states in Business in Calgary (1998) magazine, "In recent years , Fluor Daniel Canada, [Fluor Canada, Ltd.] has also invested in specific technologies that have been greatly enhanced to efficient, effective, and safe execution of projects" (p.60). Further along in the article ...
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According to Fluor Canada's website (2003), Fluor Corporation has more that 50 offices and locations on six continents. They employ over 17, 000 professionals and 23,000 skilled workers (1). With a knowledge base of this many individuals, Fluor must incorporate an IT system to tap into it. They have begun to do just that. Mark Crincich states in Business in Calgary (1998) magazine, "In recent years , Fluor Daniel Canada, [Fluor Canada, Ltd.] has also invested in specific technologies that have been greatly enhanced to efficient, effective, and safe execution of projects" (p.60). Further along in the article he says, "One such tool , called InVision (sm) allows for project managers, procurement staff, and clients to take a virtual, 3D tour of the development of a project" (p. 60). By using this type of inter-company collaboration, Fluor Canada, Ltd. is pushing itself from using a multinational strategy towards using a transnational strategy.
Improving of globalization of markets
Most would argue that when we talk about improving globalization of markets, we are talking about standardizing a product so it appeals to the needs of the consumer regardless of their national differences or their cultural differences. According to Theodore Levitt (1983) in The Globalization of Markets, "Almost everyone everywhere wants all the things they have heard about, seen, or experienced via the new technologies" (p.92). He goes on to say, "The result is a new commercial reality-the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude" (p.92). I would also argue that services, and not only products, should be included. Christopher H. Lovelock and George S. Yip (1996) state in Developing Global Strategies for Service Businesses, "...the nature of service delivery-at the point of consumption in many cases-makes both standardization and customization equally feasible [to a global strategy for manufacturing]" (p.72). The concept should be further expanded to include businesses and governments as well as the consumer. The bottom line is not the product itself in this issue, but rather the benefits derived from the product. Both business and governments also derive benefits from services as well as products. That being said, for Fluor Canada, Ltd. to improve the globalization of markets, it needs to standardize the services it offers so that they are efficient and cost effective for the world market. This is especially true because of the standardization of engineering services worldwide. Engineering is one of those services that are the same regardless of where the project is located.
The implication of not standardizing the services it offers to customers worldwide would put them behind other companies offering the same services. If they want to compete with these other companies, they must standardize their processes so they can reach economies of scope, which will allow them to offer their services at a competitive price. It appears they are doing just that. As Mark Crincich (1998) states:
Along with advances in technology and the drive to diversify its business, Fluor Daniel Canada, who is ISO 9001 certified [a global quality control certification], has adopted modern quality work processes, such as Continuous Performance Improvement programs and Total Quality Management systems, to once again aim for greater efficiency in both operating the company and executing projects. (p.60)
By implementing the programs Mr. Crincich states, Fluor Canada, Ltd. is trying to standardize their procedures and processes thereby increasing value and standardizing their services for improving the globalization of their markets.
Globalization strategies
Since we have just visited why globalization of markets for service industries should take place just as it would for manufacturing companies--more precisely Flour in this case--it is important that Flour develop a globalization strategy (including Fluor Canada, Ltd.) to augment their globalization of markets as well as incorporating a strategy that will carry them into the 21st century. In Navigating in the new competitive landscape: Building strategic flexibility and competitive advantage in the 21st century (1998), the authors say:
The technological revolution and increasing globalization present major challenges to firms' ability to maintain their competitiveness. Some of the recent important strategic discontinuities encountered include the elimination of industry boundaries, fewer distinctions between industrial and service businesses, major advances in logistics, computer aided design and communication, and opening of global markets. (p.22)
The objective of creating a global strategy is so that Fluor Canada, Ltd. can reinforce their commitment to being the leader of engineering and construction services worldwide. The implication here is how to create a global strategy that is congruent with their globalization of markets for a service business such as Fluor so that it creates value--greater than its competition-for its customers while taking advantage of discontinuities in industry boundaries. Further on in the article Michael A. Hitt, Barbara W. Keats, and Samuel M. DeMarie state,
"The rest of this work explains the actions...[that] help firms to achieve strategic flexibility and competitive advantage....major actions of (1) developing dynamic core competencies, (2) focusing on building human capitol, (3) effectively using new technology, (4) engaging in valuable strategies, and (5) building new organization structures and culture" (p. 25).
We can now look at how Fluor is developing each of these components in its overall global strategy. In developing dynamic core competencies, Flour has divested several of its assets in the past several years in order to focus on its core competencies of EPC (engineering, procurement, and construction). The latest examples of this would be its reverse spin-off of Massey Coal as well as the sale of AMECO (Fluor's heavy equipment business). Both of these businesses were in different industries than those where Fluor's core competencies lay. At the heart of the engineering section is Fluor Daniel. This arm of Fluor Corporation has locations throughout the world. Fluor Canada, Ltd. is one of the major subsidiaries as well as offices in Manila, New Delhi, and Poland. By locating engineering operations in these locations, Fluor is taking advantage of cost efficient and highly trained engineers.
At the leading edge of the procurement arm of EPC, is Fluor Global Location Strategies. This division of Fluor evaluates site locations for its clients as well as offering all of the services for acquisition of those sites. Not only does Fluor evaluate the site for plant construction feasibility, but it also evaluates the location as far as governmental cooperation and workforce availability for the industries wanting to locate in those areas. As far as the construction side goes, Fluor has construction divisions in over 50 locations worldwide. Fluor Constructors Canada, Ltd. is one of the major divisions and builds projects not only in Canada, but also in other locations throughout the world. By having these construction divisions worldwide, Fluor has the flexibility to use any one of the divisions best suited for the particular type of construction while keeping its labor cost effective. Also included in this core competency is Fluor Daniel Wright Ltd. This subsidiary specializes in mining, minerals, and metals engineering as well as being the technological center for procurement of specialized materials. Because Fluor divested those companies that were not in their EPC (core competencies) and focused on those divisions stated above, we can see that they are continuing to develop those core competencies that will make them an effective global competitor and give them the competitive advantage they need for the future.
Now we can discuss the second of the actions, building human capitol. Fluor has two subsidiaries in this area, Fluor Signature Services and TRS Staffing Solutions Inc. According to Fluor Canada, Ltd.'s website (2003), "This Fluor Corporation enterprise maximizes Fluor's investment in people, processes, and technology to deliver high-quality, cost-effective business services" (p.1). TRS Staffing Solutions (Canada) Inc. specializes in placement of engineering, computer, technical, secretarial and clerical staffing placements. As stated in the Fluor Annual Report (2000), 'Employee growth and development is a key priority and is supported by a wide range of programs. These include an extensive scope of on-line training courses as well as specific development processes to match people with opportunities to gain valuable experience" (p.8). Between these two subsidiaries of Fluor, they are not only building their human capitol by programs for learning, but they have specialized units with which to place these individuals in the right place at the right time for the mutual benefit of the employee and company as well as the client to achieve cost effectiveness as well as efficiency.
When it comes to effectively using new technology, Fluor is implementing several programs. They are in a multi-year process of revamping their knowledge delivery systems. The new program is called "Knowledge @ Work (sm)" which is a major revamping of their knowledge systems and management information systems. The new system will provide timelier and greater access to in-depth information for workers. They have also incorporated the use of the SmartPlant 3D(r), the latest 3D technology for looking at plant construction. This will allow for quicker decision making in plant design. As far as Fluor Canada, Ltd. is concerned, the most important factor in technology use is work sharing through Fluor's global computer network. As stated in Fluor Canada Grand Opening Magazine, "One of the elements that has allowed Flour Canada to bring its expertise to the world stage is the notion of work sharing....[this] allows for movement of work, on projects throughout the world into a number of Fluor's international offices through its global computer network" (p.57). This has allowed Fluor Canada, Ltd.'s engineering expertise to be used to build plants and infrastructure in several locations worldwide without the engineers leaving their offices. This gives Fluor a competitive advantage because it can keep the engineering costs down.
As far as engaging in valuable strategies are concerned, what was mentioned in Navigating in the new competitive landscape: Building strategic flexibility and competitive advantage in the 21st century (1998) is companies who develop worldwide markets for their products and services. Fluor is on the leading edge of market development for their services. First, they engineer and build infrastructure. This allows them to take advantage of emerging market countries that will require infrastructure so they can move forward. Furthermore, these countries are usually emerging because of low un-skilled labor cost. This low un-skilled labor cost is generally used for the manufacturing sector. Therefore, these countries need plants for that manufacturing. Fluor is an expert in building manufacturing plants and has done so in many countries. Using this strategy will allow Fluor continued growth.
Finally, we talk about building new organizational structures and corporate culture. Fluor has created a Global Leadership Forum as well as the Fluor Leadership Institute to bring Fluor employees worldwide together to help chart the company's future and to understand the company better, as well as the markets it services. With this type of commitment, Fluor is saying that the culture does take into account the feelings and ideas of its most valuable asset, its employees. According to Report on Business Magazine and Hewitt Associates as stated in Canada Newswire, Fluor Canada Ltd. is one of the 50 top companies to work for, "... Fluor Canada's 1,160 employees most appreciate the company's opportunities for advancement, safety culture, good corporate citizenship, and investments in training and people development. The survey specifically recognized Fluor for its commitment to training outside of the workplace" (p.1). This says a lot about the culture at Fluor Canada and managements concern for their happiness. When employees like the way they are treated by their employer, they do their best work.
Conclusion
According to Transnational Management (2000), there are three distinguishing characteristics of the transnational organization: it has a multidimensional perspective, distributed interdependent capabilities, and flexible integrative processes. It appears that Fluor is headed in the right direction to become a transnational organization.
To begin with, Christopher A. Bartlett and Sumantra Ghoshal state, "The transnational organization must have broad sensory capabilities able to reflect the diverse environmental opportunities and demands in the internal management process" (p.512). With over 50 locations on six continents worldwide, Fluor does have a diversified workforce as well as management from most cultures. Furthermore, Fluor is attempting to bring all of those views together with their Fluor Leadership Institute. As stated in Fluor Corporation Annual Report (2000), "...the Fluor Leadership Institute [was] created to bring Fluor's people together to engage them in helping the company chart its future course and broaden their view of the company and its markets" (p.9). With these types of programs, Fluor is striving for its leadership to have those "broad sensory capabilities" required to become a transnational organization. Next, concerning distributed interdependent capabilities, Bartlett and Ghoshal state, "[transnational organizations]...ensure that viable national units achieve global scale by giving the responsibility of becoming the company's world source for given product or expertise" (p.513). According to the 2000 Annual Report, Fluor is doing just that, "During 2000, we continued the process of assessing and refining our business portfolio.... This action was taken to enable the respective management teams to focus more closely on their businesses and to provide flexibility for each company to grow in a way best suited for its industry" (p.7). Finally, the third critical factor for becoming a transnational organization is incorporating flexible integrative processes. This is the most difficult of the three to achieve because it requires an interdependency of three management processes: centralization, formalization, and socialization. Without further research-more importantly the availability of Fluor's decision-making process-it is difficult to access Fluor's advancement in this area. However, they are attempting to move forward in at least one of the three areas, that being formalization. The have taken two specific actions in the area. According to their 2000 Annual Report:
First, we created a Change Management group to bring best practices to our prime contract administration activities. This will allow us to better manage changes on risk projects which are an increasing opportunity in several growth markets. Implementation of our Knowledge@Work(sm) initiative will provide additional tools to better manage projects.... Additionally, we have implemented a risk knowledge community which makes our risk management information accessible to all units of the company. (p.8)
It appears that Fluor is well on its way to becoming a transnational organization as evidenced by their incorporation if the ideas, processes, and strategies that makes an organization transnational. Perhaps they are even trying to implement the other two areas of centralization and socialization in incorporating flexible integrative processes. If they were not, my suggestion would be for them to look closely in these two areas and begin that transition. If they do so, they could be one of the first global companies to reach the transnational plateau.
References
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Canada Newswire. Fluor Canada Ranked Among 50 Best Companies to Work For. Online. Internet. 14, Sep. 2003. Available. http://www.newswire.ca/en/releases/archive/February2002/12/c1226.html
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Hitt, Michael A, Keats, Barbara W, DeMarie, Samuel M. (Nov 1998). Navigating in the New Competitive Landscape: Building Strategic Flexibility and Competitive Advantage in the 21st Century. The Academy Of Management Executive. 12 (4), p. 22-42.
Levitt, Theodore. The Globalization of Markets. Harvard Business Review. Vol. 61, Iss. 3. May/June 1983. P. 92-103
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