Investigation of The Decision Making Process for Technology Investment in The Saudi Arabia ...

238 Pages·2012·1.36 MB·English

Investigation of The Decision Making
Process for Technology Investment in The
Saudi Arabia Petrochemical Industry

Submitted in Partial Fulfillment of the Requirements of the Degree
of Doctor of Philosophy, January 2012

School of Mechanical, Aerospace and Civil Engineering,
The University of Manchester,

Tariq Alsahli
Table of contents

Abstract ……………………………………………………………………………………………………..6
ACKNOWLEDGEMENT…………………………………………………………………………………...7
DECLARATION ………………………………………………………………………………...………….8

Chapter one Introduction
1.1 Introduction …………………………………………………………………………………………….9
1.2 The purpose and importance of the research ………………………………………...…………...9
1.3 The research problem ……………………………………………………………………………....10
1.4 The research aim and objectives …………………………………………………….....…….……11
1.5 The research methodology of the study…………………………………………………………... 12
1.6 The structure of the thesis …………………………………………………………………………..13

Chapter The Saudi petrochemical industry and technologies
2.1 Introduction …………………………………………………………………………………………...17
2.2 Background of the Saudi economy and the oil industry …………………………………………17
2.3 The structure and current state of the petrochemical sector in Saudi Arabia …………………18
2.4 Issues and factors affecting the Saudi petrochemical industry …………………………………21
2.5 Petrochemical feedstock and technologies ……………………………………………………….23
2.6 Summary ……………………………………………………………………………………………...25

Chapter Three: Factors influencing the investment decision
3.1 Introduction …………………………………………………………………………………………...27
3.2 The complexity of technology investment decisions ……………………………………………..27
3.3 Factors related to decision-making over technology investment ……………………………….28
3.3.1 Environmental (internal and external) factors………………………………………………….. 29
3.3.2 Organizational Factors …………………………………………………………...……………….30
3.3.3 Operational factors ………………………………………………………………………………...31
3.3.4 Top management related factors ………………………………………………………………...31
3.4 Company readiness and the technology investment decision ………………………………….33
3.4.1 Investment readiness …………………………………………………………………………….33
3.4.2 Operational system readiness…………………………………………………………………… 34
3.4.3 Technology Readiness Level (TRL) ……………………………………………………………..34
3.4.4 Manufacturing readiness ………………………………………………………………………….36
3.5 Technology alignment with the business ………………………………………………………….37
3.6 Summary ……………………………………………………………………………………………...39

Chapter Four: The impact of investment justification and benefit realization on the
technology investment decision
4.1 Introduction………………………………………………………………………………………….. 41
4.2 Investment justification and technology investment decisions ………………………………….42
4.3 Difficulties with justifying new technology investment ……………………………………………43
4.3.1 The economic or financial approach …………………………………………………………….45
4.3.2 The strategic approach ……………………………………………………………………………46
4.3.3 The analytic approach……………………………………………………………………………. 47
4.3.4 Comparison of approaches ……………………………………………………………………….47
4.4 Top management involvement and justifying the investment………………………………….. 51
4.5 Importance of technology selection……………………………………………………………….. 52
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4.5.1 Factors to consider in technology selection …………………………………………………….53
4.5.2 Technology licensing ……………………………………………………………………..……….53
4.6 Benefit realization and technology investment ……………………………………………………56
4.7 Difficulties and challenges with benefit realization………………………………………………. 58
4.8 Summary………………………………………………………………………………………………60

Chapter Five Research design and methodology
5.1 Introduction …………………………………………………………………………………………...62
5.2 The research aims and objectives………………………………………………………………… 62
5.3 Research method…………………………………………………………………………...………. 63
5.4 Research structure and process …………………………………………………………………...66
5.5 The case study research method …………………………………………………………………..67
5.6 Criteria for the selection of the case study ………………………………………………………..69
5.7 Data collection methods and research style for this study ………………………………………70
5.8 Interviews questions and guide………………………………………………………….………….71
5.8.1 The first study ………………………………………………………………………………………71
5.8.2 The second study…………………………………………………………………………………. 72
5.9 Data analysis methods ………………………………………………………………………………74
5.9.1 Data management …………………………………………………………………………………75
5.9.2 Analysis of the first study …..……………………………………………………………………..77
5.9.3 Analysis of the second study………………………………..…………………………………….77
5.9.4 Data display ………………………………………………………………………………...……...78
5.10 Summary……………………………………………………………………………………………. 81

Chapter Six: Elite decision maker study
6.1 Introduction …………………………………………………………………………………………...84
6.2 The design of the first study and interviews ………………………………………......................84
6.3 Result and discussion ……………………………………………………………………………….86
6.3.1 Company’s background and description ………………………………………………………..86
6.3.2 The investment decision making process ………………………………………………………87
6.3.3 Key elements impact the investment decision making process ……………………………...96
6.3.3.1 Investment justifications …………………………………………………………………..…….97
6.3.3.2 Technology selection ………………………………………………………....……………….103
6.3.3.3 Company readiness and ability to invest ……………………………………………………108
6.3.3.4 Alignment ……………………………………………………………………………………….114
6.3.3.5 Benefit realisation ……………………………………………………………………………..118
6.4 Summary of the findings …………………...…………………………………………………….. 120
6.5 Summary ……………………………………………………………………………………..……. 126

Chapter Seven: In-depth analysis of factors and difficulties affecting technology
investment decision making
7.1 Introduction ………………………………………………………………………………………….128
7.2 The design and planning of the Second Study ………………………………………………….129
7.3 Investment benefit realisation ……………………………………………………………………..133
7.3.1 The benefit-realisation process and management ……………………………………………133
7.3.2 Factors and difficulties affecting the decision making ………………………………………..136
7.3.3 The impact on the decision progress …………………………………………………………..143
7.4 Investment justifications …………………………………………………………………...………147
7.4.1 The justification process …………………………………………………………………………147
7.4.2 Factors and difficulties affect the decision process …………………………………………..150
7.4.3 The impact on the decision progress …………………………………………………………..154
7.5 Technology selection ………………………………………………………………………………158
7.5.1 The selection process and criteria ……………………………………………………………..158
7.5.2 Factors and difficulties the technology selection ……………………………………………..161
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7.5.3 The impact on the decision progress …………………………………………………………..166
7.6 Investment readiness and abilities ……………………………………………………………….170
7.6.1 The process of measuring investment readiness and company abilities …………………..170
7.6.2 Factors and difficulties affecting the ability to invest …………………………………………174
7.6.3 The impact on the decision progress …………………………………………………………..176
7.6.4 Alignment actions ………………………………………………………………………………...179
7.7 Summary …………………………………………………………………………………………….183

Chapter Eight: Discussion and recommendations
8.1 Introduction ………………………………………………………………………………………….186
8.2 Summary of the research conducted …………………………………………………………….186
8.3 The key research findings and discussion ………………………………………………………187
8.4 Summary…………………………………………………………………………….………….200

Chapter Nine: Conclusion and Future Work
9.1 Introduction ………………………………………………………………………………………….203
9.2 Research contributions …………………………………………………………………………… 203
9.3 Limitations of the study and implications for further research………………………………… 205

References ………………………………………………………………………………………………207
Appendix 1: First study questionnaire ………………..………………………………………………228
Appendix 2: second study questionnaire ……………………………………………...……………. 231
Appendix 3: Terms and definition ……………………………………………...……………..……... 237

List of figures

Figure 1.1: Thesis Structure …………………………………………………………………………….15
Figure 2.1 Forecast of Saudi Arabia’s oil production up to 2015 ……………………………………18
Figure 2.2 Saudi Arabia’s share of global petrochemicals production …………………………..…20
Figure 5.1: The implemented structure and process for this study …………………………………66
Figure 5.2: Components of data analysis: Model ……………………………………………………..74
Figure 6.1: Company A investment decision making process …………………………………....89
Figure 6.2: Company B investment decision making process ………………………………………91
Figure 6.3: Company C investment decision making process ………………………………..….. 94
Figure 6.4: Company D investment decision making process ………………………….………….. 96
Figure 8.1: Framework for technology investment decision-making ………………………….…..198

List of tables

Table 3.1: Factors related to technology investment summarized from the literature review ……29
Table 3.2: Technology Readiness Levels in the Department of Defense (DoD) ………………….35
Table 3.3: MRL dimensions and threads. ……………………………………………………………..37
Table 4.1: Various methods used to make the investment decision ………………………………..44
Table 4.2: Justification methods for advanced manufacturing technologies……………………… 48
Table 5.1: A Summary of Differences between Quantitative and Qualitative Research………….64
Table 5.2: Advantages and Disadvantages of Quantitative and Qualitative Research Methods...64
Table 5.3: The interviewed respondent’s in the four companies for both studies …………………71
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Table 5.4: The examined research aspects and issues for the first study linked with research
objectives ………………………………………………………………………………………………….72
Table 5.5: The examined research aspects and issues for the second study linked with research
objectives…………………………………………………………………………………………………. 73
Table 5.6: example of a simple matrix of how the respondent’s answers were recorded and
summarized for each respondent in the first and second research study ………………………….76
Table 5.7: Example for the categorization of the analyzed data for investment benefits…………81
Table 6.1: Stages one and two of company B’s decision making process ………………………...91
Table 6.2: Investment justifications findings from study one……………...………………………. 121
Table 6.3: Technology selection findings from study one ……………………...…………………..122
Table 6.4: Readiness findings from study one..……………………………..……………………….123
Table 6.5: Technology alignment findings from study one ……….……..………………………….124
Table 6.6: Benefit realization findings from study one ………………………...……………………125
Table 7.1: The Interviewees’ in the first and second study………………………………………... 132
Table 7.2: The found criteria’s, factors of investment benefit realization and its impact on decision
making process ………………………………………………………………………………...……….146
Table 7.3: The found criteria’s, factors of investment justifications and its impact on decision
making process ………………………………………………………………………………...……….157
Table 7.4: The found criteria’s, factors of technology selections and its impact on decision making
process …………………………………………………………………………………………………..169
Table 8.1: Summary of factors affecting the investment decision making process………………189
Table 8.2: Important factors related to technology selection were identified from the literature and
the conducted interviews. ……………………………………………………………………………...194

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Abstract

Companies and organizations in different industries around the world make use of
different technologies for many reasons and purposes, such as to improve performance
and to stay competitive. This raises some questions and concerns about the use, benefit,
risk and the investment decision-making process for the selected technology. A review
of the available literature shows that the decision-making processes related to
investments in general are difficult and complex. As a result of this, many organizations
that have invested in technology have not achieved the required benefits; this leads to
unsuccessful investment decisions and loss of opportunities. This can occur when
decision makers and planners do not pay enough attention to some critical factor that
may affect the investment, or they may just not have planned sufficiently carefully for it.

This research aims to examine and investigate the gaps and factors behind technology
investment decisions, with a focus on several of the more important factors and elements
that may have a huge impact on these decisions. These include investment justification
techniques, technology selection, organizational readiness, technology alignment, and
benefits realization. The unique aspect of this research is that these five elements have
not previously been linked in research publications or reports, particularly within the
petrochemical industry. Thus, the research focuses on these five elements to identify the
critical factors and difficulties to support decision makers in order to achieve successful
technology investment in the petrochemical industry. To address the research aims, the
issues affecting investment decision-making within a number of the biggest
petrochemical companies in Saudi Arabia were investigated.

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ACKNOWLEDGEMENT

In the name of God

I would like to thank all the people who helped and supported me to conduct this research
study. In would like to deeply thank my most gratitude to Dr Therese Lawlor-Wright for
her valuable advice and expert guidance all through during this work.

I would like also to thank my colleagues for their invaluable friendship, the
administrative staff and all whom who have contributed directly or indirectly to the
compilation of this research study

Finally, I am grateful to my family for their continuous support and encouragement.

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DECLARATION

I declare that the research contained in this thesis was conducted by me. It has not been
previously submitted or used to this or any other Institution for the award of a degree of
any other qualification.

TARIQ ALSAHLI

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Chapter One
Introduction

1.1 Introduction

This research investigates the factors and difficulties that affect petrochemical
companies’ technology investment decisions and the relationships and impact these
factors have on the investment decision. The aim of this chapter is to provide an overview
of the research problem and identify the aims and objectives of this research. In addition,
this chapter will describe the applied method for this study. Finally, the chapter will also
describe the structure of this thesis and the definitions and acronyms used for this
research study.

1.2 The purpose and importance of the research

In the 21st century, the majority of organizations and companies cannot operate without
technology playing a major part in their processes. Over the past few decades, various
technologies have played a key role in enhancing the performance and method of doing
business in organizations within many industries (Ariss et al., 2000). Technology has also
had a positive impact on the competitiveness, innovation and financial performance of
firms. It has changed the behaviour of business operations, management and the
production process in manufacturing companies (Noori, 1997; Shepherd et al., 2000).

In spite of technology’s ability to bring benefits, several researchers and reporters have
identified many organizations that realized their technology investment was not bringing
or delivering advantages, which had led to wasted investments and missed opportunities,
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and was therefore considered to be an unsuccessful investment (Francke, 2003; Somers
and Nelson, 2003: Tan et al., 2006). A review of current literature shows that several
factors are involved in technology failure, including technological, individual,
operational, managerial and external factors. The effectiveness of the decision-making
process is considered a critical factor in ensuring the success of the technology
investment.

There is strong evidence that unsuccessful technology investment can be caused by the
decision-making process method, as well as the top management’s or decision makers’
roles and responsibilities in making the investment decisions (Anderson et al., 2001;
Juliusson et al., 2005; McGaughey and Roach, 1997). This requires serious attention
from researchers, consultants and decision makers themselves. This research investigates
these issues to produce recommendations to support decision makers in improving the
decision-making process with regard to technology investments.

1.3 The research problem

Feibel (2003) defines investment as “an initial forfeit of something we value in exchange
for the anticipated benefit of getting back more than we put in”. Butler (1993) defines
investment decisions as “the decision to commit a firm’s resources (capital, people,
know-how, and so on) to particular projects with the intention of achieving greater and
other benefits in future years”. Companies and organizations invest in or develop new
technologies to support their operations and processes in order to gain better
organizational performance and to meet their business objectives. However, making
strategic decisions to invest in new advanced manufacturing technology is difficult and
complex (Sambasivarao and Deshmukh, 1997; Tan et al., 2006a, 2006b). Various
external and internal factors which may affect the investment and potential benefits of the
technology may be difficult to estimate.

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