Oil and gas companies are challenged with maintaining efficient processes, retaining knowledge, and growing talent. How are oil and gas executives stepping up to these challenges? The most successful are first addressing how they are structured. These companies find that organization structure is a key component of becoming a world-class organization.
Best in the World
The Hedgehog Concept discussed by Jim Collins in “Good to Great” calls a company’s core competency the “Best in the World at” factor. Whether a company seeks to excel at subsea engineering, well control techniques, or grinding bentonite into drilling mud, the organization must focus on optimizing its core competency to remain competitive. A company’s core competency is supported by all of the functions in the organization (engineering, human resources, technology, and finance). Logically, if the company is to excel at its core competency, then the supporting functions must also excel. Most companies fail to be the “Best in the World at,” because one or more of the internal functions are weak.
We have found most global companies, particularly in the oil and gas industry, are generally not organized in a way that allows them to capitalize on their “Best in the World at” factor, diluting the specialization of their operations, impairing knowledge management, and driving away talent.
Oil and gas operations tend to be highly decentralized. Oil fields are in remote locations across the globe with limited communications and diverse environments. This geographical variance results in isolation of talent, inconsistent practices, and knowledge barriers.
Isolation: In a decentralized organization, teams are disjointed and career paths are unclear. When groups remain separate, new employees learn only from their direct supervisors in their respective geographic area. While standardized training procedures may be followed, a new employee’s training will be a direct reflection of the manager’s knowledge and predisposition.
Career paths appear limited due to segmented functional organizations. Field HSE departments at one of our clients recently experienced high attrition rates. Since field managers had little connection with HSE groups in corporate or other business areas, their career paths seemed contained within their own geographic area. With little opportunity for progression, they moved on to competitors.
Inconsistent practices: The more people in an organization are isolated by geography and differing management strategies, the processes across the organization become inconsistent and inefficient. For example, the headquarters of one of our clients provided financial forecasting guidelines for all business units, yet the actual forecasting process performed in each business segment varied tremendously. Consolidating inconsistent forecasts became a useless exercise.
Unfortunately, corporate hired more finance staff to develop forecasts in hopes of improving financial visibility; however, this proved ineffectual. Hiring additional staff to compensate for inefficiencies within the company wastes time and money.
Knowledge barriers: Many oil and gas industry employees are nearing retirement. As these critical employees retire, the industry faces the risk of the acquired experience and specialized knowledge retiring with them. One of our clients was a senior drilling engineer in Cairo. Reflecting back on his career, he spoke of the limited opportunity to share his knowledge beyond the few people he worked with locally. Eager to share his experience and knowledge, he is now consulting with one of his former employer’s competitors.
Today’s Attempted Fix
Oil and gas companies, among others, attempt to offset the barriers to being the “Best in the World at” with expensive systems and extravagant human resource strategies. These solutions serve only to patch the sinking ship. New systems are not a guarantee for efficiency and sometimes increase attrition. One of our clients introduced a new handheld device to field personnel to improve data collection. The result was arduous and time-consuming data entry for project managers, which frustrated them and drove them to join the competition.
Another oil and gas company implemented rotational programs to combat geographic silos. Young professionals are bounced across geographical locations and functional groups in order to expose them to a wide variety of roles, processes, and managerial perspectives. The young professionals are motivated with the high hopes of a fast track to vice presidency. While the younger generations are well-versed generalists in a variety of disciplines and roles, they lack the specialized knowledge required to address function-specific challenges. Moreover, the organization is limited in vice president level positions, which furthers the dissatisfaction of many high potential employees.
A Real Solution
To optimize retention of industry experts and to improve process efficiency, organizations should start thinking about how to align functions in the organization. Functional alignment does not imply a physical centralization of all staff to a headquartered location. However, aligning along functional expertise will enable the company to optimize its core competency, achieve sustainable growth, improve talent retention and development, increase process uniformity, and enhance knowledge sharing.
Aligning functional expertise in the company will improve the staff’s ability to grow, as junior personnel have the opportunity to learn from a team of veteran experts. An aligned function enables the sharing of technical skills, industry knowledge and innovative strategies. Aligning teams of experts into functions is where large organizations can gain competitive advantage over smaller, entrepreneurial competitors who are stealing talent.
Maintaining a functionally aligned organization increases adoption of uniform processes across a global organization. One of our client’s project management staff reported locally to the geographic business unit leaders. Project management processes were inconsistent across the company, project overruns were endemic, and sharing of resources and knowledge was non-existent. After the company aligned all project staff under a corporate function with disciplined processes in place, the company reduced project overruns to a negligible amount. The functionally aligned organization provides functional leaders with a direct line of sight into the activities that make the function operate efficiently and effectively. Even as leaders retire or knowledgeable individuals are lost, processes are explicitly defined and can continue without interruption.
Aligning the organization functionally enhances encourages knowledge sharing across the organization. For example, an oilfield service company’s sales representatives were aligned to each of the dozens of service lines. One sales representative would sell stimulation chemicals and another would sell wellhead equipment. There was no incentive for the individual sales representatives to sell across service lines. After receiving negative feedback from two of their largest customers (explaining why sales were declining), the company aligned the sales teams under a global sales organization. The sales organization began to share customer requirements and feedback across service lines. As a result, they were able to secure a number of sole-source master service agreements with their largest customers.
It is imperative for oil and gas companies to invest the time and resources required to support their “Best in the World at” competency. With proper organization alignment, companies will be equipped to innovate, keep costs under control, and be more responsive to customers.