Strategic solutions for cyclical industries to reduce the risks of industrial downturns : Case of the oil service industry in Southern Norway

Abstract

Cyclical industries are exposed to unpredictable industrial downturns caused by fluctuations in market conditions. Changing prices for natural resources used for industrial production are among the driving forces that can lead to industrial cyclicality. This was the case of the oil prices decrease three years ago, which led to an industrial downturn in the oil and gas, and consequently, the oil service industries worldwide. A vital industry for many countries, which is unprotected from the industrial cyclicality, the oil service industry has been selected as the case for this research. Due to time and resources limitations, the geographical area for this research has been limited to the Southern Norway. Industrial cycles directly affect firms’ behavior and strategy development processes. During industrial downturns, a lot of pressure lays on the shoulders of the managers of companies involved in cyclical industries. The appropriate strategic solutions to mitigate the negative effect of such downturns and strategically prepare for other similar downturns in the future are crucial for companies working in cyclical industries. The right resources and competences on the management level are essential for appropriate strategy development and execution. Based on a theoretical and conceptual framework of the field of corporate strategy, this research has explored how companies from the oil service industry react to the industrial downturn. The Ansoff Matrix, complemented by the strategic alliance option, was empirically applied to find optimal strategies. The main findings are that product development and market development strategies are the most feasible strategic directions for oil service companies. Strategic alliances can be used to facilitate the implementation of the mentioned directions, but are limited to the knowledge-sharing capacity of the companies involved. Generally, the main conclusion is that, due to technological evolution of cyclical industries and the increased role of digitalization in their business processes, the further strategic development of such industries should adopt cyclic business models and innovation models instead of the outdated linear models. The strategy development and implementation process itself is suggested to be cyclic, involving managers, engineers, academia, and customers in strategy making, to achieve the best strategic solutions to reduce the risks of industrial cyclicality.