During the writing of the Research & Capabilities and Knowledge & Learning modules I have stumbled across a McKinsey document that I should have reviewed back in 2006. Clearly this document has had significant influence over my thinking during the time I set out to define the draft specifications. The article is titled "The 21st Century Organization" and they have recently expanded the article into an excellent book called "Mobilizing Minds: Creating Wealth from Talent in the 21st Century". The information that I am looking at in this post is from Chapter 1 of the book. I have also reviewed the document in the Research & Capabilities and Knowledge & Learning module specifications.
One of the reasons that I am so confident in this project is, first of all, the need as reflected by the oil and gas prices. Secondly the effect that Information Technology is having on releasing the constraints within companies and industries. We are in a period of time where anything can be accomplished, and if done properly, with the People leading the way, we can solve these problems.
It was Professor Ludwig von Mises who noted that the industrial revolution was the solution to the problems of the day. I believe the Information Technology revolution is the solution to the problems of today. This book, which originated from the McKinsey article, speaks clearly to the time and place we find ourselves in.
Ask any mid-level professional or manager at almost any large company - even a successful one - and he or she will tell you that the growing complexity of work is becoming a greater and greater problem.
Starting off with a clear statement of how congested and constrained our traditional organizations have become.
One survey by the research firm Net Future Institute (NFI) showed that nearly 75 percent of senior managers consider the workload of people in their department to be too heavy. Another survey by the same firm found that most people do their best business thinking not while at work but while commuting to work or in their home. Why? Because that's when they finally get some time to think.
The problem in oil and gas is that the organization that brought us to this point in time can not deal with the complexity of the current business. The best term I have heard is that the easy or cheap energy era has ended. The firms as they stand have provided commercial volumes of energy to the markets for many years. When oil was valued at $9.00 to $22.00 a generations worth of time had past. The constraints of change and the complexity of the business are catching up to a generation of neglect in building the business. What brought us to this point is inadequate for our needs. The traditional Schumpeterian creative destruction has been delayed in this industry because of the current earnings of the producers. But if you listen closely, they are claiming their costs are inching towards the point where the bureaucracy will not be able to earn anything from their production.
The People who have worked in this industry are the ones that need to lead the changes in these organizations. These companies will never exercise the level of change that is necessary to bridge this new energy era. Are we to wait for this industry to turn to ashes before we are motivated to make the necessary changes?
The increasing frustration of the workforce is symptomatic of an even more fundamental issue: the organization of most companies today - and how it limits the ability of talented people to perform and take full advantage of the opportunities of the 21st century. The modern, "thinking" company should be a fluid and fast moving creature, in which its workers discover knowledge and exchange it with their peers collaborating with others to create value.
In many ways the industry is not just dealing with the difficulties of the business they are in, they also are faced with a "better way" to do their work as offered by IT.
The problem, however, is that most of today's large companies fall well short of creating conditions that maximize the productivity of their thinking, problem-solving, self-directed people. Too bad this thinking machine isn't working nearly as well as it should be.
And here is the paradox that most people face. The technology provides the opportunity to move to a "thinking, problem-solving, self-directed people" but also locks them into the traditional ways of the organization. As I have mentioned many times before "SAP is the bureaucracy".
Much of the communication is worthless noise: In a 2005 survey conducted by the McKinsey Quarterly, of senior and top executives, 60 percent said their company's size and complexity have made it somewhat difficult, or much more difficult, to capture opportunities than it was just five years ago. Little wonder, then, that ineffective bureaucracies develop within large companies, that the head office seems remote from the field, and that the "left hand doesn't know what the right hand is doing."
As Nobel laureate Herbert Simon stated. "What information consumes is rather obvious. It consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention."
A symptom of the problem companies face today is simply the amount of energy they waste. In the cities the problem is congestion. In companies, the problem is unproductive complexity.
It is opportune at this time to ask what happens next. In oil and gas we see the past leadership holding to the notion that they do not understand why the prices are so high. The fact is the market is allocating the financial resources to these firms to deal with the increased complexity involving the earth science and engineering disciplines. Information Technologies are enabling people within these organizations to do so much more, however, they have no authority to exercise any change. Is this situation to remain in the oil and gas industry for another five years? Or is there an alternative, such as this software development project?
The organization of most companies today bears limited resemblance to the original intended design. While there are plenty of well managed companies that are exceptions, most are struggling: Their hierarchical relationships have become so confused that the power of hierarchy to drive performance is compromised. This dysfunction is usually felt most severely at the front line, where the brainpower and the energy of front-line workers are significantly consumed in the struggle against the internal complexity of their organizations.
This is a software development project that has researched the problems in oil and gas and arrived at a solution to these problems. The five years that I have spent on this research is time that would have needed to be expended, and therefore, I am able to offer the industry the ability to turn back the clock on the past five years and establish this development as a priority.
The fact is that even the most self-directed, brilliant people can't create wealth by working alone. They need help mobilizing the talents of other thinking intensive people and securing crucial capital and labor. They need to be able to convert their thinking into moneymaking activities.
In order to proceed from here requires the People who are doing the work in these organizations to put their heads together and make this application capable of doing their jobs. This mass collaboration could start at anytime and the longer we wait, the longer the problems will fester. The involvement of the People is not something that can be replicated in any other manner. The industry needs to fund these developments and I can not do the work of thousands so time is now being lost.
A new problem
In this book McKinsey articulate further problems that are inherent in the bureaucracy. One that reflects that the lack of motivation to resolve these issues is rewarded by the price driven increases in profits of the producers.
Much of the underlying problem is the use of internal financial reports that do not reflect the underlying economic relationship of intangibles to profit making. Managers can look good on reported results, even as they take actions that hurt the enterprise. These issues are compounded by performance measurement approaches that reward selfish, divisive behavior at the expense of collaborative behaviors for the common good.
Mobilizing Mind Power
What would be the effect of having this software operational in an oil and gas concern? Would using the JOC revolutionize the performance of the science based oil and gas producer?
If your organization can harness this mind power -- if you can boost the profits from each thinking employee -- then your organization will be on the path to great success and competitive advantage in the 21st century world.
and
Most companies are tapping into only a small fraction of the potential to create wealth from the mind power of all the managers and professionals they employ. During the 20th century, the costs of coordinating work across large companies were so large that mind power was trapped in small pockets of people scattered throughout each company. But nowadays this is no longer true. As a result, today there is an opportunity to earn large "rents" (that is, profits disproportionate to the amount of labor and / or capital that are invested.)
Where the Money is
Obviously it is my belief that the changes in organizing the oil and gas industry will provide value to producers, individuals, and society. Alternatively we face a future led by the bureaucracy and its continued failure. Does anyone see how these organizations will survive until 2020?
It would be reason enough to develop better organizing approaches if all that was accomplished was to make the jobs of talented employees more rewarding. All business leaders know how important talent is to their current success. Furthermore, it could be argued, actions taken that will enable companies to attract, develop, and reward talent bring their own reward. Still, we believe developing a better organizing model is more that that. In the 21st century, its where the money is.
What I think is a critical component of this development is a refocus on the competitive advantages of the oil and gas producer. The land base and physical assets are the producers' competitive advantages. As I indicated in the Research & Capability module the intellectual property of how things get done is transferred away from the producers to the vendors, suppliers and People working within the industry. That is their competitive advantage and hence their motivation to develop the most advanced drill bits, rigs, etc. The producer does not have the scale and scope necessary to fully develop the idea, or the application to make the idea commercial. So lets stop playing the game of no one earns any intellectual property because the industry holds all the money. The producers have to actively spend the resources necessary to fully develop the support industries that will make the energy producer the most innovative and profitable. We won't get there if the intellectual property is passed around to the vendors competition by the producer firm. And that also applies to this software development project.
Because of the development of globalization and advances in technology, scale and scope effects have increased across the board -- particularly in those effects related to intangibles. By "intangibles" we mean such assets as the brands, intellectual property, and proprietary networks that are unique to individual firms.
If we don't allow the ideas that are a critical part of an innovative science based industry to be developed where and when they are needed, we will be stuck with the problems of the 20th century. The clock is now ticking.
The opportunity is to bring the entire firms [industries] mind power and the related intangibles to every job, to increase the value of every person's work, every day.
and
We are arguing that companies need to view investing in designing and building strategic organizational capabilities as means to capturing rents from everything they do. Companies are being constrained, unnecessarily, by the unproductive complexity of working in their organizations. We believe that investing in capabilities to relax these constraints, thus enabling a company to mobilize not just labor and capital but also the company's unique mind power, is the key to creating wealth in the 21st century.
and
Furthermore, we truly believe that companies have only begun to tap the opportunities to create wealth in the 21st century. Why? Because they are still using an organizing model designed for the industrial age rather than for the digital age. to create greater wealth in the future, we believe that all companies should make organizational design the centerpiece of their corporate strategies.
Please, join me here.
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