VUCA-Agility Leadership in Oil & Gas
Oil and Gas is a Sector Facing VUCA
From a possible exit of the United Kingdom from the European Union, the devolution of the once-hopeful Arab Spring into the chaos of the Syrian civil war, and turmoil from Libya to the Ukraine, Every industry is undergoing disruptive change, and the pace of change is accelerating.
The oil and gas industry has experienced a turbulent few years. A combination of economic uncertainty, geopolitical risk and supply disruptions have fueled volatility in oil and gas prices, From the mid-1980s to 2003, the inflation-adjusted price of a barrel of crude oil was generally under $25 a barrel. This rose during 2003, peaking at $147.30 in 2008 after which the recession hit and prices started to fall again, although never back to their pre-2003 prices. Competition for reserves has increased, forcing upstream companies to drill in increasingly remote, difficult and inhospitable locations. Regulatory pressures have intensified, and upstream operators and service companies face much closer scrutiny in the wake of the Gulf of Mexico spill. Meanwhile, the industry faces a number of major structural changes, including a shift in consumption from West to East and the rise of non-conventional hydrocarbon sources, such as shale gas, oil sands and biofuels.
Cost control remains firmly on the executive agenda as companies face higher costs of capital, a squeeze on cash and the need for significant capital expenditure. Mergers and acquisitions are on the rise as oil and gas companies seek to divest non-core assets and as increased competition forces a wave of consolidation among independents.
This isn’t just a VUCA world anymore; it’s becoming ever more VUCA
Andy Grove talked about this “Pow” moment in his book Only the Paranoid Survive. He called it a strategic inflection point. Today, we would call it VUCA TIME “…a strategic inflection point, VUCA TIME, is a time in the life of a business when its fundamentals are about to change… “
Volatility. Financial markets in the West are priced for perfection. What will happen?
Uncertainty. China’s new leadership have begun to slow the economy. Will they continue now GDP growth is slowing, or will they panic and do a mega-stimulus?
Complexity. Geopolitics have begun to dominate the headlines. Does Russia’s annexation of Crimea echo the Cold War? Will social unrest grow in the Arab world?
Ambiguity. What are the key metrics for running a business today? Are they cost-cutting to boost current profits? Or are they focused on innovation for future growth?
In our VUCA (Volatile, Uncertain, Complex and Ambiguous) world the Oil and Gas Sector’s stuttering performance is having a considerable effect on the global economy. Many organizations are seeking to have dramatic cost savings in its supply chain. It may be ambitious, but ultimately, non-sustainable as suppliers find that they are unable to deliver sought savings over the long term and remain in business.
The situation offers an opportunity to embrace innovation-driven change. The ‘wheel of life’ is eternally rotating. Is it time to ‘dust off’ the UK’s industry wide initiative of the 1990’s?
It began in 1993 and was termed Cost Reduction In the New Era (CRINE). The programme sought to reduce costs as the North Sea Fields were very expensive to operate. It had support from operators, regulators and government. CRINE sought to bring to end adversarial contracts and replace it with alliances and partnerships that shared risks and rewards of oil and gas field developments and operations. It inspired technological advances that stretched traditional operational envelopes to bold new levels.
Innovation driven change offers major benefits. It imbues a culture of continuous improvement, collaboration between all stakeholders, ownership at the point of greatest leverage and a sense of trust and pride.
The foundation principles of CRINE naturally blend with VUCA Prime. The VUCA Prime was developed by Bob Johansen, distinguished fellow at the Institute for the Future and the author of Leaders Make the Future. The true leaders do not wait for the future passively. Instead of being negative about the VUCA term, they take proactive steps to shape it. Leading in a VUCA world is about transmuting Volatility to clarity of Vision; Uncertainty to Understanding; Complexity to Clarity and Ambiguity to Agility.
At TTM associates, we have also worked with organizations that have found themselves in this VUCA world and have described to us what they believe are the secrets for maintaining a high performing organization in such difficult times. We have interviewed managers, collected views through Focus groups from North Africa that have had to face the normal pressures of a rapidly evolving competitive environment against the backdrop of a turbulent political situation in their country. These managers shared stories of commitment and bravery as well as some of the practical steps necessary to keep people focused on the needs of the business.
At TTM associates we use our Whole Brain Technology to SHAPE the VUCA With VUCA
Vision. Leadership mindfulness that ‘nudges’ the organization in an empowering strategic direction. Technical innovation is embraced wholeheartedly capturing ‘hearts and minds’ in a compelling manner. Delivering common shared goals e.g. “Digital Dream: broadband in every home, e-governance”. See, hear and feeling the impact of our Leadership ‘shadow’. In Scandinavia the organizational question “Why did you feel it was necessary to shut down?” has changed to “Why did you feel it is safe to start up?” – nudging the organization in safe delivery.
Understanding. Clear communications gives focus, deeper knowledge and understanding. This facilitates multi organization collaboration where empowered people are supported in developing and maintaining operational excellence.
Clarity. An open culture where clarity of purpose is embedded into the organization with shared ownership of delivery. Advanced technology risks and rewards are balanced in a pragmatic cost efficient manner. Leverage points are understood and optimized wherever possible.
Agility. Organizational agility is a ‘watchword’ for all. Opportunities to develop change capacity are grasped with vigor – this is the ‘life blood’ of the health and well being of 21st century organizations. An integrated supply chain brings value added to many facets of the business. This develops alliances that have shared ownership – installing pride in world -class delivery.
The oil and gas industry has always changed, and has caused changes in the societies in which it operates. The schismatic changes of the 1970s opened a new era. The combination of changes that the industry now faces requires epic rather than incremental responses, for the industry to evolve and prosper. Those responsible both inside and outside the industry need to try to understand what is happening now and how it may affect the future, to explain their strategies clearly and to adapt to new situations as they develop. In a world where technology and environmental threats are changing industries and society so rapidly, the slowly turning supertanker is not an image that excuses inertia in oil and gas companies and those who deal with them. All who are in the industry or who are involved with it need to share clear thinking about the future.
We require Mindful Leadership from our top companies to solidly demonstrate that incremental continuous improvement is the strategic way forward. Safeguarding the sector and supply chain. A combination of careful planning, partnerships across the supply chain, the acceptance of technological innovation and an open mind that seeks to overcome historic barriers. This can provide the bedrock as the sector explores the next 20 years – it’s at a time when global competition can only intensify. It is a new world for the sector – one of real opportunity to be embraced by all.