The trade-off between the 'Traditional' and the ‘Modularization & Standardization’ business model in the incumbent plant engineering industry

Abstract

The incumbent (chemical) plant engineering industry is under pressure for two reasons. At first, the rising internationalization of the economy results in low-cost competitors putting pressure on prices and lead times of projects. Secondly, the decreasing oil prices result in major investment cuts in the oil & gas and chemical industry. As a result, fewer projects are initiated by clients and there is thus increased pressure on the few projects which are available to tender for by the plant engineers. These two pressures result in various challenges for the plant engineer such as; reducing costs, speeding up project development and the reduction of complexity. A potential solution to this problem is the modularization and standardization (M&S) of the plant projects. However, this 'M&S business model' in plant engineering has not really been the topic of research in the academic world. Furthermore, the industry has been experimenting with the M&S business model but did not publish their result due to M&S' strategic significance. Thus, it remains hard for plant engineers to predict or assess whether M&S has potential for them or whether they should stay with their current 'traditional' business model. The aim of this research is therefore to develop a framework that can help plant engineers to assess whether the M&S business model might be relevant for them or whether they should stay with their 'traditional' strategy. The main research problem has resulted in the following main research question: Under what conditions will the M&S business model, in relation to their ‘traditional’ business model, be of added value in the incumbent plant engineering industry? In order to answer the main research question an appropriate research approach was determined. The main data sources used are the Literature study and a Case study at Technip. The Literature study is subdivided into two parts the (first) and (second) Literature study. The (first) Literature study focuses more on the creation of a proper conceptual background while the (second) Literature study focuses more on the core of the problem statement. At first, the (first) Literature study is used to collect background information that helps to familiarize the readers with the term used is this research (Chapter 2). Secondly, with the (first) Literature study a relevant theory was found that can be used during analysis to give the readers a more comprehensive and conceptual understanding (Chapter 2). Thirdly, the (second) Literature study was used as general data source to obtain academic and practical literature that differentiates the 'traditional' and M&S business model (Chapter 3). Fourthly, the data from Chapter 3 is analyzed and the relevant information that differentiates the 'traditional' business model from the M&S business model is condensed in a 'list of conditions' (Chapter 4). Fifthly, the Case study will be introduced in Chapter 5, the Case study gives additional information that differentiates the 'traditional' and M&S business model. Sixthly, the data from the case study and expert interviews was analyzed and the information that differentiates the 'traditional' business model from the M&S business model is condensed in a second 'list of conditions' (Chapter 6). Seventhly, the information from the 'list of conditions' (Chapter 4 and 6) was used to create an assessment framework. The analysis from the (second) Literature study and Case study resulted in a 'list of conditions'. The 'list of conditions' will be a list of the factors/criteria that differentiate the 'traditional' and M&S business model. The 'list of conditions' is subdivided in conditions from a plant engineering perspective and conditions from a clients perspective. The conditions of relevance from a plant engineering perspective are; Modularity, Procurement discounts, 'Learning curve' effect, Parallel manufacturing, Using a fabrication yard, Owning a fabrication yard, Standardization, Design variation, Technological improvements, Market segment fit, Plant capacity, Module size and Company commitment. The conditions of relevance from a clients perspective are; Investment costs, Schedule, Energy efficiency and Risk. In the associated chapter it explained exactly why these conditions differentiate the 'traditional' and M&S business model. The conditions that are of relevance from a plant engineering perspective are used to create the assessment framework. The output of the assessment framework can help the plant engineers to decide whether to stay with the 'traditional' business model or to further investigate the M&S business model.