Art Madsen, M.Ed.

Part I

Background of Proposed Case Analysis

Petroleum supplying nations and the firms operating within them constitute a theater of interest that has already generated countless volumes, journal articles and scholarly analyses. However, there does not seem to be a body of professional literature dealing with the application of Peter Checkland's Soft Systems Methodology (SSM) to any of the many, somewhat amorphous macro-problems which are plaguing the Middle Eastern Oil panorama (Checkland 1981).

This report will endeavor to identify a specifically defined, but multi-faceted, managerial problem associated with the Middle Eastern Petroleum Industry, one which lends itself appropriately to the application of Checkland's paradigmatic approach, and will proceed through the seven analytical stages of the classic SSM model, demonstrating the efficacy of this approach within the context of a relatively complex financial challenge. The selected problem features a number of variables and uncertainties emanating from the macro-sphere of dealings throughout the region, but focuses on the enhancement of Kuwaiti oil revenue without disrupting OPEC's price structure or the production quota system currently in place. A concerted effort will be made to remain faithful, firstly, to the intent of each analytical stage of resolution and, secondly, to root definitions, conceptualizations as well as to critical human relationships which will be portrayed as closely as feasible to the original pattern of analysis foreseen by Checkland (1992).

This paper will effectively apply SSM thinking to a real-world problem currently facing the State of Kuwait, which is still one of the richest countries in the world, evaluated on the basis of per capita income, but which has an intrinsic need to increase revenue in order to honor financial obligations related, in part, to the Gulf War.

Kuwait has been assigned a petroleum production quota by its neighbors and OPEC, on the order of 2.1 million barrels of oil per day, yet has on-going financial obligations in excess of revenue generated which must be met (Dept. of Energy, 1999). Any attempt at over-production results in harsh repressive measures by OPEC members and/or by neighboring Arab States. Iraq's invasion of Kuwait was the most violent of these reactions, but the Kingdom of Saudi Arabia, although a friendly Arab brother state, is also a major competitive force and remains so under the present day scenario. The problem to be resolved or elucidated by Checkland's SSM approach is to increase Kuwaiti oil-revenue, through implementation of a qualitative or quantitative increase of the nation's production, with proper authorization, but without upsetting the delicate balance in Middle Eastern production patterns or incurring the wrath of OPEC member states. The multitudinous factors involved in this problematic scenario can be ‘worked into' the Checkland Methodology and, taking into consideration human factors and probable behavioral reactions, a solution can be achieved which may, in fact, increase Kuwaiti Revenue without violating present or future price structures, OPEC production quotas or market dynamics.

Rather than resolving managerial and administrative problems, such as the Kuwaiti revenue enhancement scheme, one item at a time, through techniques known traditionally as reductionism or fragmentation, there is an increasingly acclaimed alternative approach, that of Checkland, for dealing with complex and highly unstructured situations. Since an important goal of this system is to elicit useful knowledge from participants in the problem-situation, and apply this knowledge efficiently, standard formal logic and currently utilized systemic methods, such as Knowledge Engineering, often involving reductionist or tightly constrained conceptual models, are not always proving successful (Stowell, West 1989). To address this dilemma, Soft Systems Methodology (SSM), developed almost exclusively by Peter Checkland, is, and has been, serving as a prototype in many amorphous or person-oriented problem-situations within corporate and industrial settings for the last decade and a half.

Checkland, Professor of Systems at Lancaster University in the U.K., in 1981 initiated and developed the SSM paradigm to respond to problems arising in complex managerial situations, where the human element tends to predominate (Finegan 1994). SSM is by no means an unsophisticated or simplistic model, although its name may prove deceptively misleading. It is, in effect, a seven stage analytical process which features the concept of human activity, including the efficient and virtually spontaneous eliciting and implementation of knowledge, and involves moving from the stage of "finding out about a problem" to "taking action to resolve the situation," according to Wilson (1984).

The seven stages of resolution are portrayed on Appendix A which is excerpted from Checkland's principal work on this increasingly well-known systemic approach (1981). It is important to recall that this system constitutes a methodology and does not, therefore, pre-determine or require a specific structured sequence, which may well be variable depending on components of the problem. Indeed, Professor Checkland's flexible SSM approach has been utilized even to examine a problem as unusual as crowd control strategies within the context of the Hillsborough Disaster (Lea, W. 1998).

This paper, however, will attempt to develop a Checkland-based strategy for use in "the real-world Kuwaiti revenue enhancement situation" , and will -- as implementation of SSM progresses -- create a conceptual model, as suggested by Checkland, in a purposeful attempt to properly perceive and then research and resolve the multi-faceted dilemma at hand, that of increasing revenue as oil prices decline, while holding production relatively steady.

The Kuwaiti problem will, of necessity, involve the complex interactions of actual Middle Eastern petroleum producers, such as Saudi-Aramco, as well as national oil ministries, and several external sources of pressure impinging on crucial business decisions, on actions and on the range of autonomy of the various key players. This problem-resolution approach will clearly illustrate, through application of SSM, that not only are there technological issues at stake, but also organizational structure and efficiency components to the problem, which are circumscribed, as hinted above, by a number of external variables, such as media pressure, public relations input and other less readily identifiable subjective and human-based considerations.

Because the variables associated with petroleum refining, production quotas and price structures are complex, frequently unstructured and poorly delineated, the SSM paradigm lends itself ideally to implementation. It allows for analysis of a structure that is slow-to-change, but one that is nonetheless constantly changing, even as the problem itself is being investigated.

After a rich picture (Stages 1 and 2) of the problem's multi-faceted elements is presented, a root definition (Stage 3) will be formulated, making tentative conceptualization (Stage 4) of the problem possible. A comparative model for resolution (Stage 5) will be partially offered and discussed, based largely on qualitative factors, in compliance with Checkland's methodology. Data, notably production quotients, consumption projections as well as some financial and statistical input, drawn in part from the conceptualization chart and from Appendix D, will be injected into the human-activity and decision-making facets of the problem, as partial support for the ultimate direction the ‘solution', changes or recommendations (Stage 6 ) may take. Impressions and findings generated in this fashion will, once again, be concisely contrasted to the real-world situation, drawing on pre-researched materials to support actual occurrences and probabilities in the Middle Eastern petroleum market, with specific reference to Kuwait. Tentative conclusions will subsequently be drawn (Stage 7) for purposes of this ‘revenue enhancement' case study.

Incidentally, it is suggested that frequent reference be made by the reader, for visualization purposes, to Appendices A , B, C and D during perusal of the following narration. These four appendices contain four charts, notably The Seven SSM Steps, a Rich Picture, a Conceptual Model, and a U.S. Dept. of Energy Chronology of the Declining Price of Oil. Two of the appended charts (B and C) are hand-sketched as would be the case in real corporate presentations, and is generally the case in published and on-line SSM analyses.

The quality of knowledge elicited and the use of the Checkland model will be analyzed to determine whether the insights gained are valid, and whether the implementation of the proposed conclusions reached can be realistically and pragmatically achieved. Of course, in a relatively brief paper, not all parameters can be discussed in fine detail; however, the seven-stage SSM paradigm, concisely described above, can be, I feel, convincingly demonstrated within the Kuwaiti Revenue Enhancement context.

It is important, for purposes of this paper, moreover, to understand that language appropriate to the real world is "one thing", and systems terminology is quite another. Both will be used herein to illuminate critical aspects of Kuwait's need to maximize revenue, without upsetting the proverbial apple cart in an unstable oil market where demand is falling, along with prices.

Part II

Preliminary SSM Analysis of the Kuwaiti Scheme

At the outset, examination of the "problem unstructured" is called for by Checkland in his First Stage of analysis. The estimated cost of the 1990-91 Gulf War easily exceeded $53 billion dollars (Kelly, 1998), most of which must be reimbursed to donor nations. Iraq, under an imposed war reparations agreement, is compelled to repay a great portion of this debt, but Kuwait has also incurred enormous internal infrastructural reconstruction costs in addition to the actual military expenses involved. This results in what accountants refer to as a relative "wash", i.e. the amount owed, account being taken of the Iraqi partial reimbursement, is still approximately $53 billion. Kuwait's oil revenue on a daily basis can be estimated, in 1998, at 2.1 MBD, as approximately $18.9 million, at $9 dollars per barrel for imported crude, given the dramatically falling world market value of oil in the last two years, related in part to the Asian economic crisis (Appendix D). This represents slightly less than $7 billion per year in gross revenue, at the lowest price for oil in years. Kuwait's three most significant petroleum customers are, in descending order, OECD-Europe, Japan and the USA (Dept. of Energy, 1999). Some 14% of US imports from the Middle East come from Kuwait, as opposed to 70% from Saudi Arabia. However, the US is not nearly as dependent on Middle Eastern oil as are Japan and Europe. So, the dynamics of demand are really centered, for purposes of looking at Kuwait's situation, on Japan and Europe rather than toward the United States. But, in addition to these external market forces, there are other factors, largely in the Middle East, impinging on Kuwait's ability to generate supplemental revenue in the current destabilized climate wherein oil is under-valued.

Collecting facts is particularly important in this, the second, stage of SSM. When moving from the unstructured problem described above, to an expression of the problem-situation in more concrete terms, it is critical to examine the processes or transformations which are intrinsically part of the resolution equation. In the case of Kuwait, the downward fluctuation of the price of oil, the relative hostility of neighbors and the constraints placed by OPEC and market forces on Kuwait's pricing autonomy must be considered. There are also individuals, within Kuwait and externally, whose opinions bear on the outcome of decisions concerning production quotas or pricing. Their names or functions appear, sketched, on Appendix B, the Rich Picture (Al-Yaqueen, 1999). Facts such as these must be gathered, according to Checkland, and relevant tools and interactions must be clarified. Raw data is important at this stage; it should be laid out and analyzed whether it was derived from statistical sources or from subjective interviews.

In the case of Kuwait, a number of factors and variables enter the picture at this stage of analysis. On the Rich Picture (Appendix B) the initial fragments of systems-thinking begin to emerge. Kuwait is surrounded by competitors, some of whom are entire nations, others of whom may be political opponents or vested interests ready to pounce on Kuwait's share of the oil-export market. The problem situation involves, not only increasing Kuwaiti oil revenue discretely, but obviously avoiding invasive attempts at actually reducing it. There are, therefore, both locations and people to confront. The role of each element on the Rich Picture must be subjected to "intervention, social and power analysis" (Couprie et al., 1999).

For Kuwait, the policies of Saudi-Aramco must be considered. What is Richard Holmes' position when setting new goals for his monolithic state-monopoly? Holmes, incidentally, is marketing Director for Saudi-Aramco. How will these goals infringe upon Kuwaiti market-territory and will new discoveries at the Shayba Oil Field mean trouble for Kuwait? Just as importantly, will Holmes' aggressive and low-cost oil-transport strategy through Vela Shipping undercut Kuwaiti dominance in certain Japanese or European markets (Wooderson, 1996)? On the other hand, might Dr. Muhammed al-Massaari's anti-Saudi position on industrial development in KSA impact Kuwait favorably (Wooderson Group, 1996)?

The managerial problem solver, using SSM, should execute analysis of key problem elements (such as those briefly alluded to hereinabove), taking advantage of feedback from colleagues, and extracting principal thematic content with his or her organization's assistance. The Rich Picture must not be narrow; it must contain all useful components and interactive pieces of the problem-situation, taking into consideration that there are a number of possible angles of attack or versions of the still-flexible system being erected. This Second Step of SSM (development of the Rich Picture) is aimed principally at informing the "problem-owner" (the Kuwaiti Government) of the parameters of the issues involved, and is not meant to suggest a premature solution.

The Third Stage of SSM is conceptually far more sophisticated than preceding steps. From problem elements, it develops, through a transformational process, root definitions of relevant systems. In the Kuwaiti dilemma, certain knowledge-intensive systems might be used, such as (1) methodologies for gathering intelligence, (2) political data bases focusing on historical reactions and counter-reactions, and/or (3) statistical models which may be employed to project production and demand quotients. The transformation process involves taking several elements from Stage 2, for example, and altering their description toward a more abstract categorization. Thus, Saudi shipping policies, plus Saudi Crown Prince Abdullah's assertive oil marketing strategies and ever-rising Saudi production figures, could be transformed, for ‘definitional' purposes, into "The Saudi Challenge", encircled on the Rich Picture under the heading "State-Monopoly/Saudi Arabia". This change also reveals the analyst's "view of the world", one of the requirements of Checkland's CATWOE framework for creating definitions.

CATWOE is, in fact, a mnemonic device used by Checkland to remind systems-analysts that SSM may be cross-verified when building root definitions, and that these definitions must conform to certain analytical criteria. It is useful to graphically display CATWOE components briefly here below (adapted for our Kuwaiti Case Study).

Source: CATWOE Model excerpted from Finegan, A., 1994, Sub-Section 3, originally from Checkland (1981). Adapted by this author for the present Kuwaiti study.

Figure I

A tentative root definition, worded in sentence fragment form and predicated on criteria set forth in the SSM model, for Kuwaiti goals and objectives might, therefore, be:

There could, indeed should, be several root definitions, describing the subordinate components of the Kuwaiti oil revenue situation. It is crucial to recognize that informational input for this definition is derived from experts in the field at hand. In the case of Kuwait , financial analysts, political figures and petroleum engineers would be consulted.

The fourth stage of resolution under the SSM model involves an extension of the Root Definition. Transformation toward ‘conceptualization' of the problem situation's resolution- activities actually takes place. Knowledge-jogging questions are posed, such as: What is minimally required in the case of Kuwaiti revenue enhancement to make it happen? Action words (primarily verbs) are required to convey, pictorially and graphically (see Appendix C), the main categories of focus to be used to further clarify a "human activity system" that will be in congruence with the real-world. At this point, systems expertise is applied to the knowledge already provided by the specialists.

For this report's Kuwaiti Conceptual Model developed on Appendix C, three main groupings, each with plausibly realistic sub-headings, have been roughly encircled:

Figure II

This SSM stage is primarily concerned with conceptual change through implementation of human activity. Communication should be enhanced; brainstorming will occur; and selection of applicable criteria will begin to lead toward potential resolution and/or pragmatic directions which the Kuwaiti Oil Ministry should take to bolster its position. Indeed, at this Fourth Conceptual Level, systems thinking is beginning to crystallize. The perceived world generates ideas which are applied to methods developed, leading to revised perceptions. Thus, market dynamics in the Middle East are analyzed, and strategies are developed by the major players (e.g. the Kuwaiti Oil Minister or the Finance Minister) and their subordinate colleagues. These strategic postures are plugged into the methodologies being discussed in this paper, and new perceptions of the world emerge, resulting in locating a "niche or advantageous position" which is theoretically translated into enhanced revenue.

Non-SSM systems approaches are invariably included in development of the conceptual thinking at this stage, so that, for example, a Formal Systems Model and a Monitoring Apparatus, as recommended by Macaulay (1996) might be established in conjunction with Checkland's thinking. Couprie (1999) concurs that this joint approach is considered effective, thus bringing the best of both systems to bear on the problem-situation. Monitoring, a first level-of-resolution activity, confirms the efficacy of the approach and determines whether goals are being achieved. Vital conceptual considerations, although peripheral to the main concepts shown on Appendix C, are essential to ultimate success of the paradigm in terms of ensuring enhanced revenue, or, at very least, these vital considerations serve to provide a viable strategy for obtaining tangible ‘financial enhancement' results in the foreseeable future for Kuwait.

The conceptual models of Stage Four, highlighting systems theory and, as indicated, specific systems foreign to SSM, give way, in Stage Five of Checkland's paradigm, to comparison of the conceptual models with the real world scenario portrayed earlier in the Rich Picture. It is not unheard of, when re-analyzing the data set forth in Stages 2 and 4, to rethink Stage 3 by renaming relevant systems and rephrasing definitions. A well-executed comparison in Stage 5 should, in fact, result in redesign of some of the priorities and concepts put forward in Stages 3 and 4. In the case of Kuwait, the weakness in our Root Definition (somewhat shortened for purposes of this paper) involves a lack of insightful thinking concerning external dynamics. If these dynamics described the actual thought-process at more length, they would prove to be extremely powerful factors in securing enhanced revenue for Kuwait, under perennially difficult circumstances.

Additionally, when the conceptual model (Appendix C) differs from the real world situation, there is another type of problem which must be redressed. In the case of our Rich Picture and our Conceptual Model, there seems, nonetheless, to be a workable compatibility requiring minimal revision in this stage. Indeed, the Concept Model provides for design and elaboration of suitable systems to deal rationally with the turbulent realities set forth on the Rich Picture , Appendix B.

From a practical standpoint, in Stage 5, questionnaires are often designed, according to Finegan (1999), to ensure intra-ministerial or intra-corporate compliance with the suggestions and decisions made necessary by implementation of Stages One through Four. E.g. "Are you likely to continue implementing the prescribed activity in the future? If so for how long?" Results of these types of questions are obviously tabulated and measures are taken to tighten procedures or to re-think strategies as necessary.

Leaving behind the comparative process in Stage 5 of Checkland's methodology, although more could certainly be said, it is important to progress to the final two Stages, six and seven. These stages are frequently grouped together since they involve Activation and Implementation of the Strategies developed earlier in the SSM process.

The Kuwait problem-situation would be considered an "untidy" and "thorny" dilemma in most administrative circles; and yet, SSM is designed to cope with the various angles and perspectives involved. Actual implementation of conceptual and real-world thinking in the SSM paradigm is, in fact, eminently possible. The positions of key-players and stakeholders in this revenue enhancement scenario are critical to understand, of course, but it is assumed that thinking in Stages 2, 3 and 4, or re-thinking in Stage 5, of this model is/was adequate to deal with the variables and risks which stand out prominently in the First Stage of Unstructured Description.

The main advantage of the Checkland method is to force new knowledge to the surface of a dilemma and to apply that knowledge efficiently and rationally to arrive at change or resolution. Revenue change is sought in the case of the State of Kuwait, and the nature of the change selected, from among many possible options, must be characterized as both desirable and practical. Change must, in effect, be feasible.

On the level of the actual Kuwaiti problem situation, what can be said in the way of the conclusion called for in Stages 6 and 7? What revenue-enhancing changes can be brought about in the production of oil, qualitatively or quantitatively, without angering OPEC, neighboring states or disturbing the already extremely volatile and delicate market depicted on Appendix D?

The probable direction to be taken is indicated partially on the Rich Picture with implications for implementation on the Conceptual Chart. Strengthening of alliances in the Middle East is essential for Kuwait. Already, Jordan and Saudi Arabia have sought to become friendlier, in the commercial sense with their brother-nation Kuwait, and the interpersonal dynamics of their leaders seem to be improving (Al-Yaqueen, 1999). This type of movement bodes well for Kuwait which -- not necessarily at the expense of Saudi Arabia, Jordan or Bahrain, Qatar or the Emirates -- may find a niche into which to position herself and measurably enhance oil revenue, which represents the ultimate goal of this SSM analysis. By combining all of the factors mentioned earlier, and many more of course, the State of Kuwait might well find herself able, even in a disastrously feeble economic climate (Asian crisis, drop in oil prices, slackening of demand, USA's relative independence of Middle Eastern oil) to increase her $7 Billion annual revenue substantially in the months and years ahead. Careful analysis of data, of political dynamics and of the human element -- combined with the action called for by Checkland in Stage Seven of his model -- might well prove the right combination of factors for registering possibly astounding success for the Oil Minister of Kuwait and his Government.

By examining the structural, procedural and attitudinal changes described by Couprie et alia (1999), in Stage Six, Kuwaiti intellectuals and financiers will be able to proceed toward the "activation" of key findings called for in the Final Stage of Checkland's methodology. In so doing, they may be able to move their already prosperous nation onto even stronger economic and socio-political ground. Implementation of the SSM thinking demonstrated in this case analysis may, in fact, make desirable and profitable change a reality for the State of Kuwait.

Account being taken of the factors elucidated above, the State of Kuwait, to enhance oil revenue in the years ahead, whether or not the price of oil increases, must begin to implement the SSM thinking set forth above. Change, constituting a feasible answer to the Kuwaiti problem-situation, can be brought about by decisive action within the Oil Ministry to unite the various forces portrayed on Appendix B in an attempt to ensure optimization of Kuwait's financial, intellectual and and technical expertise. Opposition forces and political foes of some of the key players, such as Dr. Al-Massaari, a man essentially of good will, can be brought into the picture, as advisors and mediators, to help resolve ripples of dissention as they arise. Efforts must also be made to improve fraternal relations with nation-states which, in the past, have proven willing to undercut Kuwait's position in the oil market. These states, notably Libya, Syria, Iraq and Iran, to one degree or another, have some potential to adversely impact Kuwait's market share and competitive position in the overall Middle Eastern oil panorama. By delicately treading ground which has proven hostile in the past, Kuwait's Government may be able to extend the hand of cooperation to these governments in some meaningful way, thus encouraging them to make certain concessions beneficial to Kuwaiti business and contractual dealings in the near future.

Implementing this concrete strategy, in compliance with Checkland's flexible analytical model, should result in enhanced revenue for the State of Kuwait, negative external factors and variables notwithstanding. Such an outcome, based on decisive action, would result in desired change clearly beneficial to Kuwaitis and oil customers alike.

Part III

Further Refinement of Soft Systems Methodological Analysis of the Kuwaiti Revenue Enhancement Strategy

As the analyst begins to study the vast array of variables and the ever-growing number of uncertainties on the Kuwaiti oil panorama, he or she develops an appreciation of the difficult task ahead. Kuwait, as a nation-state, is comprised of and visibly features a complex web of interacting agencies, public companies, international liaisons, financial holding companies and diplomatic ties. The government of Kuwait has embarked on joint-ventures and cooperative contractual agreements with Mainland China, the Netherlands Antilles, Bahrain, the Cayman Islands, India, and a number of other countries in the interest of diversifying its investments and distributing risk over a broader range of corporate entities, almost all of which are related to the petroleum industry. This strategy has already proven extremely lucrative and successful. Coupled with other ingenious schemes and relationships, the approach taken by the Oil Minister and his Government seems to have resulted in steadily increasing revenues and profits for all Kuwaiti State-Owned Corporations. Indeed, even though the State of Kuwait already possesses considerable assets, the Oil Ministry is interested in protecting the future generations of Kuwaitis, inasmuch as petroleum is a non-renewable resource.

To do so, the Government of Kuwait proceeded with nationalization of the oil industry, previously controlled by foreign corporate interests. Since nationalization, The Kuwait Petroleum Corporation, essentially controlled through the Oil Ministry, has safeguarded the interest of the nation. For a State the size of Kuwait, and in light of its enormous resources, this decision was a wise tactic on the part of the people of Kuwait. Just prior to nationalization in August of 1974, foreign corporate interests were exploiting Kuwaiti resources at the overly energetic rate of 3 million barrels per day, knowing that their supply was soon going to be nationalized and controlled by State legislation (KPC World, Sum1996, 15).

Checkland's theoretical model would take all of this history into account in the initial stages of analysis. The dramatic changes which came about in Kuwait's oil operations, over the last 4 decades, would be plugged into what one might call the ‘resolution equation' during the Rich Picture Stage and later in the Conceptualization process. This background history would play an important role in determining the nature of the corporate interests outside of Kuwait and could be used to expose their motivations, which are not always in the best interests of the State.

In the initial analytical section of this paper, mention was made of the low price of oil in 1998. Figures were used from the U.S. Department of Energy on Appendix D to portray a fairly desperate situation in which oil had fallen to $9.00 per barrel. Use of these figures was purposeful, since it is important, in the Kuwaiti planning process, to anticipate another massive price decline as a possibility and to strategize a probable reaction to such an event. As of this writing, however, the price of oil is fluctuating in the vicinity of $21 per barrel, a substantial increase over last year's levels. This creates a massive influx of revenue beyond the 7 billion dollars annually mentioned earlier. In fact, approximately 16 billion dollars annually can be anticipated by the Oil Ministry, much of which remains in Kuwait, but portions of which flow outward into joint venture projects, investments and long-term deposits. Still, war indebtedness, internal reconstruction of assets destroyed during the Gulf War and on-going medical and psychological costs associated with damages incurred by the population of Kuwait must be considered as liabilities of considerable proportions.

Whatever the income level of Kuwait may be now, there is no guarantee that the price of oil will remain at present levels. Severe dips have occurred in the recent past. Therefore, attention must be given to devising a long-range strategic plan for ensuring the continued enhancement of revenue.

The Kuwait Petroleum Corporation (KPC) has diversified its holdings in order to forestall the possibility of losing heavily in any given sector of economic activity. Although most of its initiatives clearly involve the petroleum industry, there have been increasing efforts to promote gas exploration and to bolster retail activity in locations such as Western Europe, where the market is strong and demand constant. In fact, taking advantage, in ways described above, of the current price surge would seem advisable for the Oil Ministry which directly and indirectly controls many of the major decisions of KPC. In fact, the Ministry and KPC work hand in glove, the latter buying oil from the former in a ‘technical maneuver' to satisfy the demands of the essentially Western- imposed capitalist system which would frown on total state control of such an industry. By cooperating closely with the Ministry, KPC ensures ‘autonomy' in the technical sense, but is actually under the proverbial wing of government control.

Further, the Ministry and KPC have cooperated by creating subsidiary entities to, for example:

These are simply some of the wide range of activities in which KPC's subsidiaries are presently engaged. It can be readily seen that considerable thought has already gone into the development of Kuwait's short term economic security.

Given the degree of sophistication of the Ministerial personnel assigned to ensuring safety of Kuwait's assets, how can the Checkland SSM model implement even more reassuring methodologies for maintaining security, in the short and medium term, but also of increasing already high levels of revenue flow well into the future? There may be a distinct need to reevaluate the priorities and data portrayed on Appendix B, reshuffling some of these factors and identifying still others. This reshuffling technique is even recommended, it will be recalled, in Checkland's Stage Five. It is not so much that the original design anticipated is out of touch either the Real World or with the Conceptual Model, but that conditions have changed during the analytical process. Checkland foresaw this contingency and provided wisely for it. If further information, such as shown on Figure III below, is injected at Stage 5 into the analysis, and then reviewed again in a ‘reality check' toward the end of the Checkland model (Stages 6 and 7) just prior to implementation, then a more accurate decision can be made in the interest of problem-situation resolution.

It is interesting to note certain key figures in KPC's profile in the 1994 and 1995 time frame, when oil, according to the US Department of Energy, was priced at a maximum of approximately $17 per barrel:



Simply by converting the Consolidated Total Assets of KPC's holdings in mid-1995 to U.S. dollars (KD 8.2 billion = $26.9 billion), and calculating at $17 dollars per barrel Kuwait's total oil revenue (assuming approximately 1.8 million barrels per day were being produced), it can be seen that KPC's holdings amounted to 87.9% of Kuwait's annual production ($30.6 Billion) for that year. Of course, this figure in itself, which compares KPC's net worth with only one year of Kuwaiti oil revenue, is not particularly enlightening, but it provides an order of magnitude of KPC's relative fiscal weight in the revenue equation for the State of Kuwait under these specific (but ever-fluctuating) conditions. One needs to ask where most of the annual revenue is going if KPC's net worth is only roughly one year's production.

Some inferences in response to this question can be drawn from data available publicly. For instance, the foreign investment portfolio of Kuwait dropped to $35 billion from over $100 billion due to the 1991 Gulf War, and due, as well, to reconstruction costs after a destructive seven-month Iraqi occupation. Colossal amounts of revenue had to be spent, directly by Kuwaitis, to offset the effects of the War, perhaps as much as $65 billion, or, on average, the equivalent of over two full years of oil revenue. Yet, Kuwait is still solvent fiscally. Their overseas investment portfolio, while reduced, was substantial as of 1998.

Interestingly, the Kuwaiti Cabinet, acting in conjunction with Parliament and the Emir, is responsible for making adjustments in the annual budget and in determining where revenues are to be spent. If the price of oil falls dramatically, then budgets are often slashed in mid-year, as was the case in March of 1998 when oil fell to $13 per barrel and the budget was cut by 25% for all government bodies. So, it can be seen that, while Kuwait is definitely solvent and healthy economically, adjustments are made -- often fairly dramatically -- in expenses internally and externally to account for the frequently unstable price of oil and gas. Apparently, based on figures available, it can be inferred that Iraqi Reparations payments are not nearly sufficient to offset damages incurred in-country. Yet, with large sums of money having been spent, the State of Kuwait can expect soon to complete restoration of all war-related damage and move forward once again with a strong overseas portfolio.

The Checkland methodology, fortunately, is sufficiently flexible to allow for these massive swings in expenditures and net income. Using the foregoing insights, plus others gleaned from public reports, expert testimony, and analysis of historical situations, Soft Systems Methodology is able to put forward certain recommendations and lines of thought which may, in effect, actually produce higher yields, improved revenue figures and result in better overall economic planning strategies for Kuwait. The final segment of this report will suggest ten potential solutions for Kuwaiti revenue enhancement, predicated on the concepts presented in the first three segments of the report and on relatively precise factors pertaining to the Kuwaiti economy, as elucidated above.

Part IV

Potential SSM-Based Solutions for Kuwaiti Revenue Enhancement

The following recommendations are predicated on SSM thinking and have been derived from the analytical process described in this paper. While some of these measures are currently in use by Kuwaiti officials, the entire combination of strategies presented below might produce noticeably better results than are currently being achieved. Such an amalgam of options and directions is precisely the type of result, after the due deliberation stipulated by Checkland in Stages 4 and 5, that is promoted by proper application and implementation of Soft Systems Methodology.

The foregoing ten recommendations are, obviously, only indicative of the types of strategies which can be devised by the experts whose far-reaching and experienced command of SSM -- a highly successful managerial problem-resolution tool since 1981 -- should and will encompass a far broader range than can be discussed in this report.

Part V

Concluding Observations

Peter Checkland's SSM theoretical model draws from a wide range of complex managerial systems. Some of them have been alluded to briefly in this paper, notably knowledge engineering, total quality management and formal systems theory. Most of these have used a fragmentary approach, falling short of encompassing many of the human elements so important in resolving multifaceted problem situations. Although TQM provides for continuous improvement as well as benchmarking, and knowledge-based engineering pulls together components essential to resolution of certain problems, largely quantitative, Checkland's model allows for actually taking action on the basis of facts gathered in a broad multi-disciplinary sweep.

Checkland's thinking juxtaposes real-world problems, such as our desire to formulate a viable and feasible Kuwaiti revenue enhancement strategy, with conceptual models designed to shed light on them, eventually providing a solution or solutions and achieving the objective sought. In more concise terms, the investigating team of specialists proceeds from a framework of initial ideas, applies the SSM methodology to a perceived problem, defines the real-world aspects of that dilemma and then develops conceptual research themes, analyzes them and applies them through concerted and coordinated action in compliance with recommendations and findings.

It would be improper to suggest that the Kuwaiti Oil Ministry has not already anticipated much of what has been said in this project-report. Indeed, a good deal of serious doctoral level thinking has already been applied, under the inspired guidance of Sheikh Saud Nasir Al-Sabah, within Kuwaiti petroleum circles. Many approaches, some independently inspired, have been tried in the past some of which have enhanced revenue appreciably but perhaps not on a consistent basis. The advantage of at least ‘looking at' the possibilities outlined in this report lies perhaps in the wisdom of Checkland's participative philosophy in which the best of all human knowledge is brought to bear on a specific problem and then, in a consultative fashion, this information is applied to a ‘concept' felt by all to be in tune with reality. The concept is then applied and results are monitored.

The ten feasible resolutions envisioned in Section Four herein above are not entirely original in their content. However, taken together, perhaps for the first time in recent Kuwaiti memory, they could yield productive results and guard against erosion of Kuwait's assets held overseas. Not only is income enhancement a desirable goal, of course, but also the protection of existing revenue sources.

What can be expected, then, of a full-fledged SSM analysis of the Kuwait revenue situation? The monarchic leadership of Kuwait is being extremely careful to safeguard the national character of its oil industry and is watching carefully to ensure that no encroachment can be made by foreign oil interests, other than within technical cooperation agreements carefully negotiated. The Government is also ever-vigilant when it comes to foreign competition. Kuwaiti intelligence services are ‘on the look-out for violations' of OPEC ceilings so that they can enforce their fair share of the world market. SSM can recommend ways to improve this intelligence gathering capability. More frequent contacts are also recommended at all levels of Kuwaiti industry and government to reinforce the people-to-people aspect of Checkland's thinking.

All of this would take the form of formal cognitive analysis of the options and directions to be chosen during the second, third and fourth stages of the SSM model. It would all be re-verified in the fifth and given a ‘reality check' in the sixth. Lastly, the newly brain-stormed strategy, outlined tentatively in some detail, would be given, in the seventh SSM stage, its test in the real world, when properly implemented and activated.

Soft Systems Methodology brings to bear a new outlook, that is to say a revitalizing and refreshingly inspired ‘tool' for approaching a difficult and highly ornate problem-situation, one in which many influential players are major ‘movers and doers' in the Middle East, and one in which many stakeholders are massive institutions standing to lose heavily if decisions are improperly designed or implemented. The built-in checks and balances inherent in SSM provide adequate insurance against such a disastrous outcome, and, in fact, bode well for the development of a cogent and profitable strategy for improving the short, medium and long-range financial status of Kuwait.


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