Within the oil and gas industry, the pandemic set off a chain reaction of events, resulting in the largest drop in crude oil pricing in three decades. Unable to assess the continued impact of COVID-19 and severely reduced production, oil and gas companies are instead looking to achieve sustainable change in a volatile market.
Restructuring is a common decision under these circumstances. A new organization model is designed, divisions are consolidated, and layoffs are conducted.
Yet the typical model – cyclical to oil and gas – is no longer, by itself, a sustainable solution to realizing value in today’s crisis and tomorrow’s competitive opportunity. While leaders must play defense, dealing with the immediate needs of their business, they must also play offense, accelerating strategic priorities and positioning themselves for the future.
When Wolves Are at the Door
As an industry that thinks in decades rather than years, the rapid shifts required by oil and gas organizations to adhere to COVID-19 guidelines globally and react to production reductions from unprecedented supply constraints has caused many leaders to fall into the trap of focusing only on what is happening to the business today, rather than where they want to take the business in the future.
Mandatory office closures and reduced asset activity have led many players to pursue dramatic organizational transformations spearheaded by a defensive position from leadership. Paramount to any operation is safety – for the workers, the customers and those ancillary to the work. Yet COVID-19 presented leaders with a unique challenge: reduce asset workers to impede the spread of the virus and potentially create risk in operational safety or implement new working procedures to continue acceptable operations and risk the health of the workforce. Either situation posed additional complexities. In a pre-COVID world, the rate of adoption and adherence would have taken months, or even years, to institute new safety policies or procedures. But in the post-COVID environment, winners have been challenged to emerge stronger, leaner and more agile at a faster pace than ever before.
Leadership teams must commit to not only taking the above defensive postures, but also seeking any available window of opportunity to transform for the future. Doing so requires an aligned leadership team – with a comprehensive understanding of the full strategic enterprise – to evaluate multiple decisions to accelerate the formation of a new organization.
Over the last several years, we have worked with some of the world’s largest multinational oil and gas companies, helping them transform during times of crisis, most recently during COVID-19. One striking pattern that has emerged is the acceleration of digital transformations, prioritizing strategic initiatives (and reducing the noise working against them), and flattening the organization for sustainable, long-term growth.
Accelerating Digital Transformation
A leader playing offense when everyone else is playing defense must mobilize an often-paralyzed organization by creating the conditions for change. A crisis lends itself to a defensive stance, a firefighting reaction, that can leave a workforce debilitated and unable to quickly respond if another crisis emerges. Risks and liabilities are created when leaders over-index on a defensive posture. Balancing defense with an offensive approach, however, can create alignment and energy to activate workforce talent and accelerate a new organization.
During COVID-19, we have partnered with oil and gas companies to identify windows of opportunity, move quickly and drive unambiguous results. For these organizations, taking a defensive stance meant ensuring every employee utilized the best technology to drive productivity. COVID-19 required swift action by leadership to connect a disconnected workforce, including providing appropriate devices to each employee, such as laptops, external monitors, tablets and smartphones, to work from home, remain connected, share critical data, and hear the latest from the leadership team on COVID-19 restrictions. In the midst of the pandemic, many companies we’ve worked with have migrated their organizations to Microsoft Teams for real-time digital collaboration and replaced satellite Internet with high-speed WiFi. Their defensive game plans payed off: once again, workers were safe and connected.
This was not, however, the digital transformation that a majority of leadership teams had planned to deploy over the next three years. Instead, leaders have had to ask, “How can we enable our workforce to accelerate the delivery of what is now essential, large-scale digital transformation in under three months?”
We worked with the leadership teams to identify, align and commit to critical digital levers that would position them ahead of their competitors, post-pandemic. For one organization this entailed developing new AI predictive tools to optimize production under market constraints and, at another organization, the priority was to improve terminal reliability due to the increase in typhon disruption in South East Asia.
Each digital transformation initiative was accomplished in less than three months, far ahead of the original completion dates of five to eight years out. In fact, a senior leader challenged the team driving the AI predictive tool to add a new capability to the platform, thinking the best-case scenario would yield a prototype within several months. Yet he was blown away when the team met his challenge within seven days. Likewise, the other team improved terminal reliability by over 90 percent resulting in $20 million to $25 million in annualized revenue.
Reducing the Noise
The level of noise in an organization can be directly traced to the varying degrees of a crisis. In times of panic and confusion, defensive reactions often result in equal to or greater activity, regardless whether that heightened activity will drive value under the constrained circumstances.
Often, decentralized task force groups are stood up across divisions to seek solutions specific to a functional area, resulting in copious work and misaligned action plans that over-resource employees and deprioritize key operations. Financial losses are attributed to the crisis and an organization will announce workforce reductions, ironically laying off those whose role was deprioritized in light of the crisis, but who still contribute to a critical function of the business. The result is an organization with fewer workers who must now make up for the losses incurred.
Sound familiar? In a cyclical industry, oil and gas companies follow this defensive pattern in volatile markets, resulting in constraints when the market is on the upswing and demands achieving more with fewer resources. Leadership at an OCTG manufacturer in the U.S. struggling to get their goods through final production found themselves asking, “What is under our control that can dramatically be streamlined or simplified?”
The solution was simple – do less. Turns out the inspection protocol included looking for issues that were within an acceptable level of variance and visual inspections were creating more issues than they were solving. An initiative team quickly advocated for and installed a new digital solution to eliminate this bottleneck.
The difference was dramatic. Enabled by digital solutions, the leadership team saw critical initiative teams move at a speed that outpaced the organization, which became a catalyst for long-term programs to be fast-tracked and for a growing market opportunity to be capitalized on.
Flattening the Organization
A sustainable restructuring institutes the conditions for leaders at all levels to be empowered to drive change. A key characteristic of a sustainable organization is flexibility to rapidly pivot in new circumstances. Without this enabler, organizational restructurings must occur more frequently to alter static operations.
Knowing the toll a restructuring can take on the workforce, the leadership team at one oil and gas company we’ve worked with gathered to determine what offensive approach could be taken to create a long-standing and sustainable new organization, post-pandemic.
As initiatives were removed and noise was reduced, the leadership team designed a flattened organizational model to eliminate redundant, cascading levels and provide clarity and transparency to the organization. Leadership also added one key step to the process: evaluating current and future hires based on behaviors, in addition to the traditional past performance and skillset assessment.
In determining new roles and responsibilities in the emerging organization, leadership started with those who embraced and modelled the behaviors they wanted to see. The conversation felt very different than before. Rather than considering an individual for a role based on their long-term tenure or relationships across the organization, individuals at all levels were assessed based on potential to exceed expectations because of what leaders had seen demonstrated during the crisis and would need in the new organization. For many oil and gas companies this is a tectonic shift: restructuring based upon future impact, not simply performance-based ranking from the past.
Harnessing Lessons from Volatility
Leaders in every organization are facing a new challenge and an unrivaled opportunity. The last few years have brought major shocks to the oil and gas industry and 2020 was no exception. The COVID-19 pandemic has the potential to set back organizations for years as they tend to financial losses and an overwhelmed workforce. Yet, leaders also have the opportunity to harness the lessons from this company on balancing defense with offense.
Leaders who can act both defensively – acknowledging the criticality of responding to the pandemic as key to enabling the opportunities in crisis – and offensively to accelerate long-term strategies, are given a unique chance. By acting now, leaders can take advantage of opportunities that are yet to be discovered while also sustaining the behaviors from COVID-19 to prepare their organization for the future.
Headline photo courtesy of Zbynek Burival – Unsplash
Oil and gas companies are regularly faced with many industry-specific issues to overcome. Such issues, including exploration and drilling, are often complex and intricate processes with many unique challenges to overcome. Data analytics can play a massive part in streamlining some of the most fundamental operations that are involved in the oil and gas industry.