By Osama Elsaadawi, Marketing Manager, Oil & Gas Skills
Today’s oil and gas organizations were developed in a time of resource scarcity. To get at those hard-to-find, difficult-to-develop resources, companies built large, complex organizations with strong centralized functions. This model allowed them to tackle terrific technical challenges, manage great operational risk, and deploy scarce talent across its operations.
While these reasons were all valid during a decades of high growth, this organizational journey also led to substantial complexity for large players, adding cost, stifling innovation, and slowing down decision making processes.
This organizational model is no longer sustainable with oil prices below $50 a barrel. More important, though, it is no longer necessary. We are now entering a time of great change, with major societal, technological, and economic trends reshaping the environment, in which oil and gas companies operate.
Compounding the issue is the fact that many existing human resource management systems are outdated and contain inconsistent and incomplete reporting on skills, job histories, and performance data. That makes it hard for managers to make an objective portfolio assessment of employee performance as well as their talent.
The future outlook of Egypt oil and gas production is now shaped through new exploration in Mediterranean offshore, which will play a greater role in supplying the growing demand.
The Zohr Deepwater gas field is expected to start production in 2017 and reach full production capacity in 2019, with estimated proven reserves of 32tcf.
The technological trends and high risk after the accident at the Deep Water Horizon drilling platform in the Gulf of Mexico has forced many companies to review their approaches to safety measures, how people are talented and leaders have influence. These can drive for more sustained organizations and operations with excellence.
His Excellency, Egypt’s Minister of Petroleum and Mineral Resources, Tarek El Molla, is also concerned with people talents and sustained organizations. That is one of the strongest reasons that the Ministry of Petroleum launched the Modernization Project in September 2016. A very optimistic vision has been identified to drive the sustainability and development by 2021. And it is aligned with Egypt’s Vision 2030.
The People Development agenda in the Modernization Project will encourage companies to seek opportunities to apply best in class talent management process and leadership at higher level.
A rapid performance management system can both help oil and gas companies fairly and transparently address their near-term workforce needs while laying the groundwork for a more sustainable performance management system in the future. Through a combination of organizational forecasts, data mining, fact-based review, and transparency, companies can make the most of a difficult situation and build a stronger organization.
By retaining the right talent and modeling under-performers, oil and gas companies can significantly improve financial and operational performance. Research across industries has demonstrated that in high complexity jobs—like technical roles in oil & gas companies—high performers are 8 times as productive as average performers. Properly applied, a rapid individual performance management system can help oil and gas companies retain and reward their top performers even in the midst of industry-wide cuts.
Five Big Ideas for Our Oil & Gas Organizations in the Future
- Organizational Agility
The relentless pace of change puts a premium on the ability to adapt quickly to changing conditions, in other words, to be agile. In our view, agility combines two distinct concepts: dynamic capabilities
and a stable backbone. Dynamic capabilities entail the ability to rapidly form cross-functional teams and reprioritize tasks to adapt quickly. A stable backbone of core value-adding processes and cultural norms that provide resilience, reliability, and relentless efficiency is another element.
While other industries are further away from the agility curve, many oil and gas companies have already acquired pockets of agility. An oil and gas company, for instance, took inspiration from the software-development world and used a “scrum” approach to simplify drilling standards from 1,000 pages to fewer than 100. As a result, the company completed this exercise in a matter of weeks and cut drilling cost by 30%.
At the same time, agility is not meant to be chaotic. For the dynamic elements to succeed, they must be linked to a stable backbone. This will include a small number of simple but mandatory processes that are universally followed, a common culture to allow faster collaboration, and instant access to reliable data and company’s full knowledge base.
Aggressively standardizing and simplifying processes can allow companies to react quickly to unforeseen events, while improving safety and productivity. For example, Schlumberger identified the relocation of its people as one of its central processes, as it ensured that the company can deploy talent as rapidly as possible anywhere in the world. By rigorously standardizing the process, deployment time was reduced from two to three months to two to three weeks.
Perhaps the biggest change required in the backbone is to repackage and structure work to enable small teams to form, take a defined task, and execute it quickly. An example here is the default use of industry standards—with applications tailored by asset type—to create and enforce a simple but strong backbone. Such ideas are gaining traction in the industry, with 17 international oil companies (IOCs) and national oil companies (NOCs) currently working together, through the World Economic Forum, to agree on standardized procurement specifications and pilots for ball valves, subsea trees, and low-voltage switchgear.
Agile Organizations Will Differ in Several Dimensions
- Digital Organizations
Organizations have been digitizing for decades, but the digital revolution is still only just in the beginning. Within a few years, the Internet of Things will consist of more than a trillion sensors that generate and share data. Artificial intelligence and machine learning are no longer science fiction, and human–machine interaction is becoming ever more frequent. These innovations are about to change the way oil and gas companies work in three substantial ways.
A step change in safety and productivity will result from digitizing both technical and nontechnical work in a way that automates 60 to 90% of routine manual activity, while identifying true best practices. This means better safety both because fewer people will be at risk and because automation is reducing the risk of human error.
It also means great improvements in workforce productivity. For instance, an engineering, procurement, and construction (EPC) firm was able to use advanced analytics to sift through thousands of capital projects and discover a few simple practices that improved engineering productivity by more than 20%.
Digital is also an important enabler of organizational agility, for example, through instant access to information for frontline decision makers or via the real-time deployment of maintenance teams linked to predictive-maintenance algorithms.
There will be new ways of managing people and performance. Many human-resources functions are already investing in advanced analytics to mine large data sets about their workforce—training history, productivity, calendar and email, surveys, social-media profiles etc.—to identify the drivers of employee performance, recruitment, retention, and employee engagement.
- Young Age-Managed Organizations
Young aged employees are no longer a small group of new university graduates; in many oil and gas companies, they occupy managerial roles and are starting to climb into the executive ranks. As they rise through the organization, millennials will bring their own ideas about collaboration, accountability, and the use of technology. Leading companies will design an environment that meets the expectations of millennial leaders.
It will create more flexible employment structures, horizontal career moves, and a flexible take on career progress as well as a new working environment and culture. These could include technology-enabled remote work and flexible working hours allowed by a results-oriented mindset. Similarly, the application of social-media tools in the corporate setting will become a part of the process. For example, NASA, the Royal Bank of Scotland, and Virgin, among others, already use social networks such as Facebook, Slack, and Yammer instead of traditional intranet and file-sharing tools.
- Decentralized Organizations
Over the past 15 years, the corporate centers of most oil and gas companies grew significantly, as a way to manage risk, leverage scale, and share scarce technical talent. However, many of the forces underpinning the drive to centralize have now eroded. The collapse in crude prices has made large overhead costs unaffordable, and slow decision making has become a threat to long-term viability.
However, this will not be consistently felt across assets. Managing risk—technical, commercial, and operational—is still a compelling reason to centralize and is particularly evident for high-complexity plays such as deepwater, and liquefied-natural-gas (LNG) assets. We will likely see new mergers. Acquisitions to form profitable organizations have been on the stage with two dominant models: lower-risk and higher-risk assets. The former employs a very lean corporate center with highly autonomous asset teams, whereas the latter, more-capital-intensive assets, employs a much stronger center with deep functional capabilities and a strong emphasis on risk management.
- Redefining the Core
Companies are thinking again about what activities they need to control in-house versus those they manage via partnerships and supply-chain relationships. We believe the future oil and gas company will more closely resemble today’s industrial manufacturers, with a move away from tactical contractual arrangements, leaning more toward long-term strategic partnerships with a network of tier-one and tier-two suppliers. For example, prior to its acquisition by Shell, BG Group signed a long-term strategic alliance for front-end project engineering with KBR, an EPC company.
Similarly, in a world of plentiful resources, access is no longer a key strategic differentiator, and large oil companies may increasingly rely on specialized explorers rather than in-house exploration teams for reserve replacement.
Any one of these ideas would have far-reaching implications for oil and gas organizations. However, many of these ideas could be self-reinforcing. For instance, as oil and gas companies adopt a more agile way of working, they could become magnets for top millennial talent. Millennials will accelerate the adoption of digital technologies, which could facilitate the reforms, which in turn allows for an even more agile workplace.