4 Tips to Managing Successful Joint Ventures

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Managing Joint Ventures in Oil and Gas

Due to increasing project complexity and customer demands, it is now commonplace for organisations to form alliances across industries. Organisations are moving towards joint ventures to tap on the partner’s strengths and diversify at a much lower risk. Joint ventures provide an entry point into strategic markets, making JVs an attractive option to get around regulatory issues.

Joint ventures in US yield a 17% return on investment, compared with an industry average of 11%. Meanwhile, in a global survey of 253 companies that used joint ventures to spur growth or optimize their product mix, more than 80% of the participants shared that their deals met or exceeded expectations.

JVs are especially useful for the oil and gas industry due to the nature and size of investments made in the industry. In oil and gas, joint ventures are commonly used for exploration and production. With that, JVs provide a way for oil and gas companies to innovate at a lower risk while working together with technology companies, for example, to gain a competitive advantage.

When properly managed, joint ventures is a key strategic tool for companies to stay ahead of the game. One of the key elements of success is by having the right foundation in place before the deal is signed.

Here are the 4 critical elements for success in joint ventures:

• Alignment of goals
• Having a clear governance structure
• Successful integration of both partners
• Adaptability to changes

• Alignment of goals

For a successful joint venture, both partners need to establish a comprehensive strategic foundation, with clear deal objectives. This ensures that both partners are on the same page and expectations are managed.

As a start, the joint venture objectives need to be inline with the corporate growth strategy of both companies. Several analyses must be done prior to create a strong foundation for the value the joint venture will bring for each party, before finally deciding on the agreed model, structure and partnership terms.

• Having a clear governance structure

Before the deal is done, the governance structure and organisation design of the JV needs to be prepared. This minimises potential disputes during daily operations and preserves the strategic intent and balance of power. In addition, having a defined business plan based on the parent companies’ initial objectives and assessing the potential risks of the JV, all helps in the success of the JV as both parties are made aware.

• Successful integration of both partners

After the deal has been negotiated and signed, all resources need to be pooled to be able to achieve the desired results. This refers to the partners’ ability to make critical decisions to priorities the initiatives led by the joint venture. Successful integration from both partners is key to achieving success.

• Adaptability to changes

Lastly, the key to ensuring that the joint venture can survive, is its ability to adapt to changes. From shifts in market conditions to increased capital requirements, both partners must be able to adapt. One of the ways to manage this is by having quarterly meetings to review progress and goals.  Indeed, when joint ventures fail, it’s often because partners haven’t set up a process for tracking and adapting to changes.

Success or failure of large JVs often comes down to the expertise and experience of both leaders and managers. Companies increase their odds of successful joint ventures if they invest to build and maintain a strong joint venture capability.

Managing Joint Ventures in Oil and Gas is a 2-day training course held from 25-26 November 2019 (Kuala Lumpur).  This course aims to discuss and provide an understanding of the principles & ideas to influence your JVs to be more aligned and constructive. Also learn how to maximize value and find the best solution for the overall partnership for both parties.