S + B's Big Oil's Big Shift
We have today a remarkable article from Booz & Co’s “Strategy + Business” (S + B). Prospective users of People, Ideas & Objects software applications and members of the Community of Independent Service Providers need to see that the work that they can do at People, Ideas & Object is topical, and hence valuable. This S + B article entitled “Big Oil’s Big Shift” provides an understanding of some of the issues in oil and gas. Many of the points in the article are specifically addressed in the Draft Specification. Although S + B considers the majority of these issues arise as a result of the BP Gulf of Mexico spill, to many, these issues were evident irrespective of the spill.
The targeted market for the People, Ideas & Objects software applications is the entire oil and gas industry. This definition includes start up oil and gas companies, independents, International Oil Companies (IOC’s) and National Oil Companies (NOC’s). All of these firms use the Joint Operating Committee (JOC) systemically throughout their organizations.
Risk has always been inherent in the extraordinarily complex projects that extract oil from the ground or sea. During the past few years, industry trends have added to this risk. The most accessible and productive oil fields, including those in the Middle East and Russia, are now owned and operated solely by national oil companies (NOCs). Leading international oil companies (IOCs) such as BP, ExxonMobil, and Shell — also known as the oil majors — therefore find their access to “easy” reserves rapidly shrinking.For the reasons noted in the above quotation, People, Ideas & Objects believes the four classes of producers will partner to approach the remaining technically difficult and demanding reserves. Therefore it is imperative that these JOC’s and partnerships are able to deal with any combination of producer classes, in as many geographical areas as necessary. Access to an ERP system that can identify and support these different producers business operations is therefore a necessity.
Supporting the interactions between producers within a JOC is only the beginning. The ability to work closely with the service industries is also a necessity. The Draft Specifications Resource Marketplace module provides the ability for the producers represented in the JOC to deal more closely with service providers in the service industries, communities and contractors. The Draft Specification also provides a new governance model to facilitate these interactions through the Military Command & Control Metaphor. S + B states:
But the oil majors will have to manage their contractors differently, working more closely in teams with business partners that earn their trust over a long period of time, and in some cases taking stakes in third-party providers to better control their performance. This partnership model must be built on interdependence and mutual respect — a significant change from long- standing practices in some parts of the sector. The oil majors will also need to revise their operating models, sorting out a different mix of activities to outsource, and bringing some of the most critical oversight functions back in-house — so they can address quality issues and place employees on the front line to better oversee the growing situational risk in oil drilling.To make this possible requires management to fall on their sword. As I have noted in each of this blogs recent closings, management are conflicted, and the executives at the producer firms need to make the decisions to financially support these developments.
Perhaps the biggest uncertainty in this new and challenging business environment is the ability of the major oil companies to change as conditions shift measurably. Most large oil companies — including both international oil majors and state-owned NOCs — have rigid management cultures and adversarial, penny- pinching relationships with suppliers and partners. Historically, they have tended to focus on short-term cost cutting without sufficient consideration for collaborative operations that could benefit themselves and their partners.Lastly, S + B notes that the time for these changes to become effective is now. Prospective users and members of the Community of Independent Service Providers will be the ones at the forefront of these changes.
Many people in the oil industry have foreseen these types of changes, but they haven’t been forced to act. Now they will be. Those who figure out how to move beyond their past practices, troubled contractor relationships, and rigid management structures will lead the next generation in the oil sector — on land, in shallow waters, and in deep and remote locations. The time for these changes could come surprisingly soon.Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.
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