"To survive corporations must execute in the present and adapt to the future."
This according to the author of this McKinsey article Eric D. Beinhocker. Click on the title to access this article, I highly recommend it's review. The author notes through research that two types of companies have evolved over the past century. High performance companies, which historically are unable to sustain their success vs. long term adaptors, companies that survive for long periods but do not perform well. The author provides research data that only a handful of organizations are able to achieve high performance and long term adaptation.
I have suggested this performance paradox is in play in the oil and gas industry today. And the solution to it is the hypothesis of the Plurality thesis underlying these blog entries. This solution involves identifying and supporting the joint operating committee. Building software that is consistent with the joint operating committee as the organizational focus. It is also my contention that this theory is the main point of conflict within the energy industry. To have McKinsey state explicit support for this type of thinking makes me realize that I have not pursued these ideas in vain.
The adaptability of a firm is dependent on three barriers, People, Structure and Resources.
"People, the price of experience"The author notes that the "bias of over optimism can make organizational change efforts seem less urgent." I would add the confirmation bias, and as I noted in my Plurality thesis, both the motivational and cognitive paradox's. The confirmation bias enables people to see what they would like to see. The motivational paradox suggests that users lack the time and effort needed to learn new applications due to the overwhelming concern for though put. And the cognitive paradox notes that people tend to apply what they already know in coping with new situations.
Nonetheless each of these bias' and paradox point to the same issue. The installed base of management becomes a facilitator of execution, but also an albatross to adaptation to new situations.
"Structure, the risk of complexity catastrophe""As an organizations size and complexity grow, its degrees of freedom drop. The complexity of execution inevitably leads to inter-dependencies and organizational complexity, which in turn create the potential for gridlock."
I suggest that this implies that the performance of the firm would seriously degrade prior to the onset of gridlock. Is this what is occurring in oil and gas? Is the industry being challenged with new pricing and value metrics, facing an insurmountable change paradigm that management is unable to approach? If so it would be reasonable to assume that gridlock is right around the corner. It appears the majority of energy users demands are not being addressed or even recognized. If gridlock is the inevitable outcome as the author suggests, does this assume that we have to await its arrival before we take effective action? Or alternatively, will these software developments be driven by the users needs for a more effective and hence less timely way to do their jobs.
"Resources, the path to dependency.""As managers search for complementary business processes and plans, over time those constrain the organization in its ability to expand its horizons."
"Creating an adaptive social architecture.""Companies have two ways of overcoming these barriers. One is what Jack Welch called the "hardware" of an organization (its structure and processes), the other the "software" (norms and culture). The two sides must be consistent and mutually reinforcing to create a coherent social architecture."
It is suggested 3 approaches to overcome the gridlock and constraints:
- Reduce the hierarchy.
- Increase autonomy.
- Encourage diversity.
However, addressing these hardware concerns provides only half the solution, you must also align the "software" of the organization.
"Organizational Software"
"Flatness, autonomy and diversity are diametrically opposed to the control, coordination and consistency that successful execution require. But the software of norms and culture can help organizations have their cake and execute it too."
The author notes the following 3 attributes are consistently seen in all high performing and adaptable organizations. These are as follows.
Co-operating norms.As opposed to having the hierarchy enforce norms of trust, reciprocity and shared purpose. In this proposed solution, the joint operating committee operates at a level where the participants have control over these metrics. The focus is jointly shared by the participants collective motivation to optimize the investment.
Performing norms.Replacing the role that senior management plays in pacing and setting performance requirements "by instilling norms that create strong expectations for individual performance." To offset senior managements centralized role of performance, individuals can be motivated to go the extra mile knowing success will be rewarded.
Innovating norms."Facts matter more that hierarchy" and "good ideas can come from anywhere." This blog is dedicated to the innovative producer. It is my assertion that the prices of energy commodities is a reallocation of the financial resources to support innovation. Innovation being a subset and mutually reinforcing cycle based on these underlying earth science and engineering disciplines.
Back to the original point that the author states. Companies need to execute in the present and adapt for, and to, the future. With the pace of change in the business community those that are able to effectively adapt will have the ongoing strategic capability to essentially continue on. Those that are unable to adapt are pursuing strategies of gridlock and quickly eroding competitive advantages.
I have stated many times in this blog that I do not see the structured hierarchy as being the means for the industry to adapt to these new realities. These realities are playing out and are addressed in this fine article. An article that provides an explicit solution that senior management must relieve some of their concerns for performance and place it in the hands of the front line. In the case of the oil and gas industry, the joint operating committee.
Part of the conflict that is prevalent in oil and gas companies is attributable to the "hardware" structure and processes of the organization are not aligned with the "software" components. The "software" being the culture and the norms of the organization are clearly based on the joint operating committee. Is it the legal, financial, operational decision making and cultural frameworks of the global oil and gas industry. Yet no company explicitly addresses this key organization method. This point is the source of the conflict in the industry and the source of its future adaptability.
If a user is faced with the change paradigm in this software development proposal, because it is consistent with the norms and culture of the industry the solution is very evident. The lack of cooperation between the joint operating committee and the hierarchy is the issue. The methods of management for the hierarchy have always conflicted with the joint operating committee. And over time no one questioned if this was the right direction. In other words, to adopt the joint operating committee will eliminate the majority of the conflict that is present in oil and gas administration and management.
Not pursuing this opportunity to develop these systems leaves the industry further behind where it should be in it's transition to adaptability. I can only assume at this point that the reason that these software developments are not being started is that the industry has attained that lofty point of gridlock.
technorati tags: Genesys, Plurality, McKinsey, Adaptability