The effect of the current oil price on the Middle East has been dramatic. Much of the industry is still coming to terms with the impact of lower revenues, which are continuing to decimate budgets and investment forecasts. With the prospect of any significant oil price “correction” unlikely until at least the end of 2016, emphasis should, according to Philip Camp of Hitachi Consulting, a global management and IT consultancy, be placed on safe and cost effective management of day-to-day operations.
At an operational level, costs are still being heavily challenged, in particular around supply chain rates and contractor and staff costs. The latter in some cases amount to 60% of an OPEX budget. With an underweight qualified junior talent pool, as well as nationalisation pressures from regional Governments to reduce the heavy, costly reliance on expatriates, there are various nationalisation initiatives already well underway to address this, such as graduate programmes, women’s integration programmes and coaching programmes for leaders.
Advancing to the Next Level of Operational Excellence
Across the Middle East, the aspiration for continuous improvement is not new and indeed has recently proven to be vital for the oil and gas sector as companies have to find more creative and sustainable ways to streamline operations to address the current low oil price. Consequently, the industry is working through a period of transformational change not experienced in the region before. Although throughout the industry initiatives such as Six Sigma, Lean, Agile and Kaizen to drive out inefficiencies and improve processes are common place, these initiatives alone have not provided the complete foundation to drive continuous improvement across the entire organisation from top to bottom.
Operational Excellence (OE) has been explained in a myriad of ways by industry experts with varying definitions. A simple definition is “Creating a platform across a business to drive continuous improvements in performance.” With the introduction of OE, leadership teams can confidently say and prove that they are running their assets safely, reliably, sustainability and cost effectively. These achievements result from implementing transformational programmes that define the OE strategy, principles, expectations and processes and convert them into sets of repeatable actions. Companies introduce OE as a vehicle of change, to build momentum, transform the way their organisation works and to deliver the costs savings and scale of improvements demanded by the current low oil price.
Many of the regions’ oil and gas companies have started to roll out their vision and strategy for OE but in some cases have lost momentum over time or have yet to deliver sustainable results. Why are these companies struggling? Reasons vary but include: inaccurate project scoping, a false sense of security, lack of motivation or even a lack of leadership support. As there is no single approach to OE that can be applied universally, gaps in initiatives can still persist as OE is about cultural and behavioural change not just simply a way of effecting cost reduction and quality improvement.
OE initiatives are sometimes seen as being ‘Projects’, with a beginning and end – rather than the fundamental shift in mind-set that precedes real and lasting change. The industry is very good at ‘copying’ and ‘pasting’ what others have done, concentrating on the tasks and going through the motions, rather than effecting deep change. If we consider issues around the lack of engagement either intentionally or passively then it is not surprising that we see up to a third of initiatives fail. Success usually only comes when the business can identify clear and measurable operational improvements, define a financial target from the offset, articulate the elements of a sustainable result early on and build an internal change capability to ensure improvement can really be continuous.
Encouraging Real Collaboration
Whether the task is to deliver improvements from within disciplines such as Integrated Asset Planning, Risk Management, Production Optimisation or Supply Chain Management, it is essential to communicate a clearly defined change strategy because change needs to be seen as a constant, not a one off event and it needs to become a core competency in an organisation. Change often needs to happen quickly, constantly and consistently. Some organisations are experiencing ‘change fatigue’ particularly as a result of the sheer number of rushed initiatives being introduced.
Moving forward, oil and gas operators have to be more agile when faced with disruption and uncertainty. The adjustment and alignment of staff behaviours to new ways of working is the most critical success factor. Sustainable improvement requires developing the capability to coach those implementing change and to ensure they can provide ongoing coaching within the business.
Our experience has shown that change management programmes have common themes to ensure that the organisation runs more efficiently allowing workers to connect as empowered individuals and not components. Departments then collaborate rather than compete, they agree clear methods to measure what they do and they can use their initiative to improve the business. Functional areas want to perform better because they have a stake in the process of setting goals and they see what is being achieved and again, individuals clearly see their role in the business and their personal impact on performance, so their work becomes more satisfying and enjoyable. Everyone plays a part in setting targets so that they become a shared objective and a point of collective and personal pride. Rivalry gives way to respect and teamwork, and improvements continue to be achieved in the long term because people feel central to the results they create through the relentless focus on the discipline of getting things done.
Leadership Creates Positive Performance
Company leadership needs to be able to set clear targets and create ownership. In order to make targets credible and achievable, detailed diagnostic work should be used as a means to engage at all levels of the business and to identify root causes of poor performance and to set clear KPI’s that can be used to measure progress against the OE business objectives, outcomes and timelines.
Leadership teams need to ensure that the KPI’s are relevant to specific improvements being pursued and are consistently measured. The right people need to be identified to lead the change, becoming the role models within the organisation, providing active leadership to build up internal capability, implementing clear governance and ensuring a structure is in place to align everyone toward a common goal no matter where they sit in the organisation.
Care must be taken to establish a well-designed delivery engine with a number of experts in line with the size and maturity of the business. Encourage and create mediums for open dialogue. Break down the silos that exist between supply, commercial, operations and other parts of the business to create integrated solutions.
A Sustainable Future
The oil and gas industry has always been dynamic and this has led to real changes in the societies of each country across the Gulf region where it has a presence. Those responsible both inside and outside the industry need to understand the impact this has now and the effects it will have in the future, to explain their strategies clearly and to be able to adapt to new situations as they develop.
Success in achieving OE is in understanding the relationship between change management and OE which is very much dependent on employees’ empowerment and ownership, the desire to embed a culture of continuous improvement and a collective commitment to deep change. By putting behavioural change at the core of each OE initiative, it is possible to achieve remarkable results. Leaders need to take accountability to create a critical mass of individuals dedicated to achieving well defined targets and provide those individuals with the tools and competences to deliver. Only then can a significant change become a new way of working.
An article from Philip Camp, Vice President, Energy, Metals & Mining Industries, EMEA, at Hitachi Consulting. Camp focuses predominantly on the Oil and Gas market in the Middle East.