Digital Transformation: A Look Back on the Evolution of the Competency Shift in Upstream
Our “Proven Methodology for an Organization’s Transformation to Integrated Operations” has delivered powerful results within a sea of struggling digital transformation initiatives. Our framework was born from the fundamentals of the oil industry, molded around the drive toward Operational Excellence, and delivered through an engineering process with an anthropological approach.
Fifteen years ago, my colleague and I produced several pieces titled “The Competency Shift in Upstream”. Our hypothesis at the time was that Information Technology capabilities would become critical enablers to organizational sustainability for oil companies. It was the precursor to Digital Transformation.
Many other industries were in full adoption mode of digital solutions for managing operations and seeking competitive advantages in the marketplace. The oil industry, true to form, was lagging, with small pockets of “innovation” beginning to emerge. Today, the industry has spent billions of dollars on IT tools and initiatives, with less than 1% utilization of the terabytes of data collected. The value proposition has proven to be negative, and executives are asking “Why?”. Attempts to rectify the situation are also failing. Was our original hypothesis wrong?
Yes and no.
Our point of view accurately represented a future vision where access to operational data would be pervasive in an increasingly connected global environment. Our youth, the future professionals, were being raised in a digital world. Advanced communication devices were rapidly evolving. And the complexities of finding oil continued to escalate. Leveraging information and communication technologies seemed more than logical: it was critical. So, what did we miss?
We failed to address the migration path. Saying that we needed to achieve a new operational paradigm, that fully embraces Information Technology within our petroleum technology world, was insufficient. HOW to get there, bonded with the WHY, was actually the key.
Oil Industry Fundamentals
The answer is revealed by examining the fundamentals of our industry that drive the behaviors that define our organizational cultures.
- Degree of Difficulty: What we do every day is more difficult than putting a man on the moon. The technological innovations that we have delivered over the last 120 years are staggering. It takes the brightest and most creative minds to overcome the physical obstacles of extracting hydrocarbons from the earth, then transporting and processing them in a safe, efficient and cost-effective manner. Translation: Our people are really, really smart.
- Risk Profile: Our industry is dangerous. Every minute of every day we make multimillion-dollar decisions that can have catastrophic consequences if we make a mistake. Therefore, we manage risk very carefully, and many times our decisions are not driven by straight-forward cost calculations. Additionally, SAFETY is top-of-mind. Translation: Our people do not easily accept suggestions from ill-informed outside influences.
- Siloed Business Model: A major integrated oil company is divided into three operating businesses: Upstream, Midstream, and Downstream. Each functions completely independently. This “businesses within businesses” mindset flows down within each segment. For example, the Upstream function of production also operates in sub-function silos. Translation: Our people are not accustomed to open collaboration.
In order to devise an effective migration path toward a new operational paradigm that fully embraces Information Technology within our petroleum technology world, we must honor those fundamentals that built the most powerful industry on earth. Unfortunately, in a quest to find efficiencies in a low crude price environment, companies have been desperately grasping at straws to drive adoption. The following efforts ignore those fundamentals, and consequently do NOT work:
- Brute force: Finding ways to obligate employees, especially critical knowledge workers, to abandon their “tried and true” ways of executing their operational tasks is severely misguided. These are engineers who, on a daily basis, perform incredible engineering feats to pull oil out of the ground. They are sufficiently clever to make you think they are complying. Alternatively, if they don’t care to make the effort to play the game, you will annoy them enough to simply walk out the door.
- Data Scientists: There is a huge translation issue between data scientists and our engineers. The smartest data scientist may be able to analyze complex bits and bytes, but they can’t pull a drop of oil out of a reservoir 35,000+ feet below the earth’s surface… which is also under 8000 feet of water in the middle of the ocean.
- Lean Six Sigma Black Belts: Similar to the data scientists, even the most talented members of the group will identify process improvements that will fall on deaf ears because their knowledge base is void of experiences of operational nuances and this that will render any efficiency play useless, and possibly detrimental.
- Change Management Specialists: A handful of companies have done an excellent job of slotting industry veterans into these roles. Unfortunately, the vast majority of change practitioners are crippled by being viewed as both “outsiders” and “soft skill” professionals.
These are all valiant attempts, and they’re arguably logical at first glance. Unfortunately, they are destined to fail because they attempt to address symptoms rather than underlying causes.
Exacerbating matters is a current wave of efforts to find efficiencies by reaching for the “new” and exciting information technology advancements in the market such as:
- Fog – Cloud Computing
- Edge Computing
- Internet of Things
- Artificial Intelligence – Machine Learning – Deep Learning
- Robotic Process Automation
These trends, under the banner of Digital Transformation, could potentially yield significant value to our industry, but initiatives to exploit their potential will fall victim to the same ill-advised implementation and adoption approaches.
Our point of view of what DOES work is based on 15 years of helping organizations develop and implement successful integrated operations. Our methodologies and frameworks are born from within our industry by oil company veterans, molded using combined engineering and anthropological approaches, and refined by the boots-on-the-ground field resources who have resisted all the above failed initiatives.
Operational Philosophy & Operational Excellence
We begin by understanding where the most fertile ground is for finding inefficiencies: the hand-off points within business units and operational functions. By softening those boundaries and integrating key processes, we tease out areas for improvement. Our methodology incorporates deep learning activities to uncover underlying issues that impede “excellence”, and also establishes a REAL timeline to that heightened performance level. We carry this a step further and drive that thinking within functions to create a more collaborative mindset. The result is the operational philosophy of Integrated Operations.
Therefore, we define Integrated Operations as a state of operational excellence comprised of advanced capabilities whereby functional silos are no longer a key barrier to organizational performance. The primary characteristics are:
- Collaborative, cross functional processes and behaviors
- Aligned metrics and rewards systems across functions
- Distributed decision rights
It must be noted that at this point Information Technology has not yet been mentioned. Staying true to the fundamentals of our business, we must recognize the paramount importance of the highly specialized expertise of our engineering and operations teams. Their continuous exchange of ideas and synchronization of information is critical to managing the complexities of our business. This can NOT be replaced by IT systems; IT systems can only support their efforts. Bottom line: Do not automate or digitize that which is inefficient.
Driving toward that collaborative mindset requires tapping into the performance obstacles of the field teams. Asking them what capabilities they need to solve their most urgent challenges goes a long way. Failing to take this approach often results in attempted deployment of solutions that are not fit-for-purpose, and almost always cause distractions that negatively impact performance. Remember, they are generally not receptive to outside influences.
Prioritizing operational capabilities allows teams to focus on achieving the most impactful key performance indicators through operational excellence. This approach puts process improvement ahead of digitization. The adoption of information and communications technology solutions then tells a much different story:
- Users will identify their needs and recognize / request a useful IT solution
- Those solutions will enable processes that have been defined as Operational Excellence
- Application of tools that are not fit-for-purpose will be drastically reduced, if not eliminated
- Users will appropriately demand to monitor and measure effectiveness against relevant key performance indicators
- Safety remains central and, as a residual, is improved
- Adoption increases exponentially (without the introduction of “change management” distractions)
- Bottom line: Lower cost of implementation and adoption, greater yields of value in a much shorter time.
A Collaborative Mindset
It is natural desire for specialized and experienced personnel to be respected for their knowledge and their ability to apply their skills. The proclivity to collaborate will only emerge in an environment where all parties derive benefit and perceive their contributions as adding value. Applying information and communication technologies as only a means to extract and collate data is not only insufficient but can also be detrimental to both performance and safety. The oil industry, given the fundamentals, requires expert interpretation and subsequent collaboration between disciplines to ensure understanding and applicability to the operation at hand. Building that environment is embedded in our methodology, which incorporates governance structures and an architected distribution of decisions rights.
In addition to creating that environment, organizations can accelerate success through the assimilation of new personnel. Specifically:
- Young Workforce: As mentioned previously, today’s youth have grown up in a connected world. They have been raised with a different outlook on information sharing. As an industry, we must do a better job of attracting young talent to a global business that is not considered as “sexy” as working for Google or Amazon. And once we have captured their attention, we need to create an environment that keeps it.
- Women Engineers: Countless studies (HBR, Korn Ferry, etc.) can be cited that show women to be naturally more collaborative than men. They are also driven differently. Our industry has made great strides in bringing more female engineers into the fold. This trend will continue now that investors have made the linkage between organizational sustainability and increased diversity of workforces.
- Hiring / Compensation / Promotion Criteria: In addition to screening for technical aptitude, Human Resource departments can actively select candidates for employment that have a track record for collaborating. They can also structure mechanisms for rewarding desired behavior within the existing ranks. As an added plus, the HR function becomes a more strategic partner to the operations.
For those who continue to struggle, the promises of value from IT capabilities may not have materialized quite the way we envisioned fifteen years ago. That is not to say that the potential is not there. The path to achieving meaningful benefit must begin with acknowledging our industry fundamentals and then pursuing operational excellence through collaborative efforts to build advanced capabilities. Only then will Digital Transformation efforts soar.
Recognizing that collaboration is critical, we have structured our methodology to be an engineering process with an anthropological approach. Our complex framework, born from the fundamentals of the oil industry and molded around the drive toward Operational Excellence, gets customized to each asset’s needs. Most importantly, support is delivered by our team of industry veterans who help drive ruthless execution toward achieving critical Key Performance Indicators (KPIs) in this difficult economic environment.
Driving collaboration and adopting an integrated operations mindset has proven to deliver dramatic results for our clients. Our case studies include client-recognized annual values ranging from $700 million to $2 billion. Furthermore, these successes have laid the foundation for the next wave of capturing value through Digital Transformation. Done the right way, benefits satisfy both the short and long term, hence contributing to sustainability. Bottom line: Making sure the horse is before the cart = greater sustainable value in less time for less cost.
At Veritas Total Solutions, we can help your organization achieve operational excellence and capture the value through Digital Transformation, the result of which is integrated operations. If you are interested in learning more about our specific capabilities, contact us to learn more or subscribe to our blog to stay connected!